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| x    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934                                                                                                                                                    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| For the fiscal year ended December 31, 2010                                                                                                                                                                                                                      |
| OR                                                                                                                                                                                                                                                                    |
| o    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from           to           |

| Delaware(State of Incorporation) | 13-4230695(I.R.S. Employer Identification No). |
|----------------------------------|-----------------------------------------------------|

| Title of Each ClassCommon Stock, par value $.01 per share | Name of Exchange on Which RegisteredThe NASDAQ Stock Market LLC (Nasdaq Global Select Market) |
|-----------------------------------------------------------|-----------------------------------------------------------------------------------------------|

|   |  Securities registered pursuant to Section 12(g) of the Act:  None |
|--------|-----------------------------------------------------------------------------------|

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|       |                                                                          | Page   |
|------------|-------------------------------------------------------------------------------|--------|
| PART I     |                                                                          |   |
|       |                                                                          |   |
| Item 1.    | Business                                                                      | 1      |
| Item 1A.   | Risk Factors                                                                  | 8      |
| Item 1B.   | Unresolved Staff Comments                                                     | 16     |
| Item 2.    | Properties                                                                    | 17     |
| Item 3.    | Legal Proceedings                                                             | 19     |
|       |                                                                          |   |
| PART II    |                                                                          |   |
|       |                                                                          |   |
| Item 5.    | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer |   |
|       | Purchases of Equity Securities                                                | 19     |
| Item 6.    | Selected Financial Data                                                       | 21     |
| Item 7.    | Management's Discussion and Analysis of Financial Condition and Results of    |   |
|       | Operations                                                                    | 24     |
| Item 7A.   | Quantitative and Qualitative Disclosures About Market Risk                    | 50     |
| Item 8.    | Financial Statements and Supplementary Data                                   | 50     |
| Item 9.    | Changes in and Disagreements With Accountants on Accounting and Financial     |   |
|       | Disclosure                                                                    | 50     |
| Item 9A.   | Controls and Procedures                                                       | 51     |
| Item 9B.   | Other Information                                                             | 51     |
|       |                                                                          |   |
| PART III   |                                                                          |   |
|       |                                                                          |   |
| Item 10.   | Directors, Executive Officers and Corporate Governance                        | 52     |
| Item 11.   | Executive Compensation                                                        | 52     |
| Item 12.   | Security Ownership of Certain Beneficial Owners and Management and Related    |   |
|       | Stockholder Matters                                                           | 52     |
| Item 13.   | Certain Relationships and Related Transactions and Director Independence      | 52     |
| Item 14.   | Principal Accountant Fees and Services                                        | 52     |
|       |                                                                          |   |
| PART IV    |                                                                          |   |
|       |                                                                          |   |
| Item 15.   | Exhibits and Financial Statement Schedules                                    | 52     |
|       |                                                                          |   |
| Signatures |                                                                          | 56     |

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|   | Ø | inpatient services, primarily skilled nursing centers; |
|--------|--------|--------------------------------------------------------|

|   | Ø | rehabilitation therapy services; and |
|--------|--------|--------------------------------------|

|   | Ø | medical staffing services. |
|--------|--------|----------------------------|

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|   | • |   | High Quality Portfolio. SunBridge operates inpatient services in all of its centers, which, as of December 31, 2010, consisted of 164 skilled nursing centers, 16 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and eight mental health centers. Our subsidiaries also provide rehabilitation therapy services through SunDance, which, as of December 31, 2010, provided rehabilitation therapy services to 508 centers in 36 states and medical staffing services through CareerStaff, which, as of December 31, 2010, provided medical staffing services in 39 states. Our operations are geographically diversified and characterized by strong operating metrics. The quality of our operations enables SunBridge to manage patients with higher acuity levels (i.e., the condition of patients that determines the level of skilled nursing and rehabilitation therapy services required).  Higher acuity levels help drive operating margins. The size of our operations enables us to realize the benefits of economies of scale, purchasing power and increased operating efficiencies. Furthermore, our geographic diversity helps to mitigate the risk associated with adverse regulatory changes related to Medicaid reimbursement in any one state. |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | Core Inpatient Services Business. Our inpatient business has the ability to achieve consistent revenue and earnings growth by expanding services and increasing focus on integrated skilled nursing care and rehabilitation therapy services to attract high-acuity patients to all of our nursing and rehabilitation centers and through targeting specific centers with Rehab Recovery Suites that exclusively specialize in caring for high-acuity patients. |
|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | Quality of Care and Strong Brand Image. SunBridge’s centers maintain initiatives to provide high quality of care to their patients. These initiatives have resulted in third-party recognition for quality of care and clinical services. SunBridge has been able to, and expects to continue to, attract an increased number of high-acuity patients, maintain a high occupancy rate and develop an effective referral network of patients. |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | Ancillary Businesses Will Support Inpatient Services and Provide Diversification. SunDance, our rehabilitation therapy business, complements our core inpatient services business. Its services are particularly attractive to high-acuity patients who require more intensive and medically complex care. SunDance has demonstrated the ability to grow organically and partner with non-affiliated skilled and assisted living facilities in delivering efficient and effective rehabilitation services to customers in 36 states. Our SolAmor hospice business, which serves patients in certain of our nursing centers, in-home settings and non-affiliated centers, is an increasingly important contributor to our earnings growth and operating margin.  SolAmor now operates in 11 states and has demonstrated the ability to integrate efficiently the operations of three nonaffiliated hospice companies since 2008. CareerStaff, our medical staffing business, primarily services non-affiliated providers and derives a majority of its revenues from its placement of therapists. CareerStaff also places physicians, nurses and pharmacists. We expect to continue to leverage the core competencies of CareerStaff’s business to benefit the SunBridge and SunDance businesses. These ancillary businesses diversify our revenue base and  provide an opportunity to improve our payor mix. |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | Experienced Management Team with a Proven Track Record. We have a strong and committed management team with substantial industry knowledge. Our chief executive officer and chief financial officer together have over 45 years of healthcare experience, as well as a proven track record of operational success in the long-term care industry. Our management team has successfully acquired and integrated numerous businesses, assets and properties, and this experience should position us well to successfully implement our growth and integration strategies. |
|--------|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | • |   | reducing labor and billing expenses through technological advances and operational improvements that enable management to more efficiently deploy resources; |
|--------|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | reducing overhead through process improvement initiatives and frequent re-examination of costs; |
|--------|---------|--------|-------------------------------------------------------------------------------------------------|

|   | • |   | improving therapist productivity in our rehabilitation services business; |
|--------|---------|--------|---------------------------------------------------------------------------|

|   | • |   | controlling litigation expenses by focusing on risk management; and |
|--------|---------|--------|---------------------------------------------------------------------|

|   | • |   | monitoring and analyzing the operations and profitability of individual business units. |
|--------|---------|--------|-----------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

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| – | the “anti-kickback” provisions of the Medicare and Medicaid programs, which prohibit, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate) directly or indirectly in return for or to induce the referral of an |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|    | individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under Medicare or Medicaid; and                                                                    |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                  |
| – | the “Stark laws” which prohibit, with limited exceptions, the referral of patients by physicians for certain services, including physical therapy and occupational therapy, to an entity in which the physician has a financial interest. |

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|              |   |      |   | Number of Licensed Beds/Units(1) |
|-------------------|--------|-----------|--------|----------------------------------|
|              |   |      |   |                             |   |   |   |   |   |   |
|              |   | Total     |   |                             |   | Assisted/ |   |   |   |   |
|              |   | Number of |   | Skilled                          |   | Independent |   | Mental |   |   |
| State             |   | Centers   |   | Nursing                          |   | Living |   | Health |   | Total |
| Ohio              |   | 17        |   | 2,392                            |   | - |   | - |   | 2,392 |
| Massachusetts     |   | 18        |   | 1,803                            |   | 57 |   | - |   | 1,860 |
| Kentucky          |   | 20        |   | 1,598                            |   | 235 |   | - |   | 1,833 |
| New Hampshire     |   | 15        |   | 1,131                            |   | 474 |   | - |   | 1,605 |
| Connecticut       |   | 10        |   | 1,327                            |   | 72 |   | - |   | 1,399 |
| California        |   | 15        |   | 858                              |   | - |   | 473 |   | 1,331 |
| Colorado          |   | 9         |   | 1,203                            |   | 97 |   | - |   | 1,300 |
| Idaho             |   | 11        |   | 1,053                            |   | 141 |   | 22 |   | 1,216 |
| Oklahoma          |   | 7         |   | 1,003                            |   | 83 |   | 60 |   | 1,146 |
| Florida           |   | 9         |   | 1,120                            |   | - |   | - |   | 1,120 |
| New Mexico        |   | 9         |   | 890                              |   | 180 |   | - |   | 1,070 |
| Georgia           |   | 9         |   | 1,002                            |   | 32 |   | - |   | 1,034 |
| North Carolina    |   | 8         |   | 930                              |   | 44 |   | - |   | 974 |
| Alabama           |   | 7         |   | 757                              |   | 26 |   | - |   | 783 |
| West Virginia     |   | 7         |   | 739                              |   | - |   | - |   | 739 |
| Tennessee         |   | 8         |   | 693                              |   | 22 |   | - |   | 715 |
| Montana           |   | 5         |   | 538                              |   | 112 |   | - |   | 650 |
| Washington        |   | 5         |   | 444                              |   | 36 |   | - |   | 480 |
| Maryland          |   | 3         |   | 434                              |   | - |   | - |   | 434 |
| Rhode Island      |   | 2         |   | 261                              |   | - |   | - |   | 261 |
| Indiana           |   | 2         |   | 208                              |   | - |   | - |   | 208 |
| New Jersey        |   | 1         |   | 176                              |   | - |   | - |   | 176 |
| Arizona           |   | 1         |   | 161                              |   | - |   | - |   | 161 |
| Utah              |   | 1         |   | 120                              |   | - |   | - |   | 120 |
| Wyoming           |   | 1         |   | 46                               |   | - |   | - |   | 46 |
|   Total |   | 200       |   | 20,887                           |   | 1,611 |   | 555 |   | 23,053 |

| (1) | “Licensed Beds” refers to the number of beds for which a license has been issued, which may vary in  some instances from licensed beds available for use, which is used in the computation of occupancy. Available beds for the 200 centers were 22,400. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                              |   |   |   |   |
|---------------------------------------------------|--------|--------|--------|--------|
|                                              |   | High   |   | Low    |
| 2010                                              |   |   |   |   |
| Fourth Quarter (November 16 to December 31, 2010) | $      | 12.99  | $      | 9.37   |

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|                       |   | 11/16/10 |   |   | 11/22/10 |   |   | 11/29/10 |   |   | 12/6/10 |   |   | 12/13/10 |   |   | 12/20/10 |   |   | 12/27/10 |   |   | 12/31/10 |   |
|----------------------------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|---------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|
| Sun Healthcare Group, Inc. |   | $        | 100.00 |   |     | $      | 88.39  |     |   | $      | 83.82   |   |   | $        | 93.14  |   |     | $      | 105.63 |     |   | $      | 109.85   |   |   | $ | 110.29 |   |   | $ | 111.35 |   |
| Russell 2000 Index         |   | $        | 100.00 |   |     | $      | 103.13 |     |   | $      | 103.81  |   |   | $        | 107.93 |   |     | $      | 109.56 |     |   | $      | 111.03   |   |   | $ | 112.47 |   |   | $ | 111.30 |   |
| Long-Term Care Facilities  |   | $        | 100.00 |   |     | $      | 105.40 |     |   | $      | 102.51  |   |   | $        | 107.41 |   |     | $      | 114.49 |     |   | $      | 118.90   |   |   | $ | 120.24 |   |   | $ | 120.05 |   |

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|                                                                                |   | At or For the Year Ended December 31, |      |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                                                |   | 2010 (1)                              |      |   | 2009 (2) |   |   | 2008 (3) |   |   | 2007 (4) |   |   | 2006 (5) |   |
|                                                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Total net revenues                                                                  |   | $                                     | 1,906,861 |   |   | $ | 1,880,776 |   |   | $ | 1,822,766 |   |   | $ | 1,557,463 |   |   | $ | 982,658 |   |
| Income before income taxes                                                          |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and discontinued operations                                                         |   |                                  | 248       |   |   |   | 72,696 |   |   |   | 67,161 |   |   |   | 43,367 |   |   |   | 11,259 |   |
| (Loss) income from continuing                                                       |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| operations                                                                          |   |                                  | (2,716    | ) |   |   | 43,080 |   |   |   | 114,509 |   |   |   | 54,281 |   |   |   | 11,473 |   |
| (Loss) income from discontinued                                                     |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| operations                                                                          |   |                                  | (1,934    | ) |   |   | (4,409 | ) |   |   | (5,222 | ) |   |   | 3,229 |   |   |   | 15,645 |   |
| Net (loss) income                                                                   |   | $                                     | (4,650    | ) |   | $ | 38,671 |   |   | $ | 109,287 |   |   | $ | 57,510 |   |   | $ | 27,118 |   |
|                                                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per common and common equivalent share:                              |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing                                                       |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| operations                                                                          |   | $                                     | (0.14     | ) |   | $ | 2.95 |   |   | $ | 7.93 |   |   | $ | 3.85 |   |   | $ | 1.09 |   |
| (Loss) income from discontinued                                                     |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| operations                                                                          |   |                                  | (0.10     | ) |   |   | (0.30 | ) |   |   | (0.36 | ) |   |   | 0.23 |   |   |   | 1.48 |   |
| Net (loss) income                                                                   |   | $                                     | (0.24     | ) |   | $ | 2.65 |   |   | $ | 7.57 |   |   | $ | 4.07 |   |   | $ | 2.57 |   |
|                                                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings per common and common equivalent share:                            |   |                                  |      |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing                                                       |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| operations                                                                          |   | $                                     | (0.14     | ) |   | $ | 2.93 |   |   | $ | 7.60 |   |   | $ | 3.58 |   |   | $ | 1.07 |   |
| (Loss) income from discontinued                                                     |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| operations                                                                          |   |                                  | (0.10     | ) |   |   | (0.30 | ) |   |   | (0.35 | ) |   |   | 0.21 |   |   |   | 1.47 |   |
| Net (loss) income                                                                   |   | $                                     | (0.24     | ) |   | $ | 2.63 |   |   | $ | 7.25 |   |   | $ | 3.80 |   |   | $ | 2.54 |   |
|                                                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of common and common equivalent shares:                     |   |                                  |      |   |   |   |   |   |   |
| Basic                                                                               |   |                                  | 19,280    |   |   |   | 14,614 |   |   |   | 14,444 |   |   |   | 14,117 |   |   |   | 10,546 |   |
| Diluted                                                                             |   |                                  | 19,280    |   |   |   | 14,714 |   |   |   | 15,075 |   |   |   | 15,142 |   |   |   | 10,696 |   |
| Working capital                                                                     |   | $                                     | 172,592   |   |   | $ | 175,604 |   |   | $ | 172,145 |   |   | $ | 83,721 |   |   | $ | 96,245 |   |
| Total assets                                                                        |   | $                                     | 1,081,758 |   |   | $ | 1,571,194 |   |   | $ | 1,543,334 |   |   | $ | 1,373,826 |   |   | $ | 621,423 |   |
| Long-term debt and capital lease   obligations, including current portion |   | $                                     | 155,980   |   |   | $ | 700,548 |   |   | $ | 725,841 |   |   | $ | 729,268 |   |   | $ | 174,165 |   |
| Stockholders' equity                                                                |   | $                                     | 512,443   |   |   | $ | 449,064 |   |   | $ | 403,709 |   |   | $ | 246,257 |   |   | $ | 144,133 |   |
| Dividends per share                                                                 |   | $                                     | 0.1335    |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Dividends                                                                           |   | $                                     | 9,996     |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
|                                                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental Financial Information:                                                 |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA (6)                                                                          |   | $                                     | 91,320    |   |   | $ | 167,476 |   |   | $ | 162,112 |   |   | $ | 118,930 |   |   | $ | 44,013 |   |
| EBITDA margin (6)                                                                   |   |                                  | 4.8       | % |   |   | 8.9 | % |   |   | 8.9 | % |   |   | 7.6 | % |   |   | 4.5 | % |
|                                                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted EBITDA (6)                                                                 |   | $                                     | 121,388   |   |   | $ | 168,822 |   |   | $ | 161,135 |   |   | $ | 122,126 |   |   | $ | 45,161 |   |
| Adjusted EBITDA margin (6)                                                          |   |                                  | 6.4       | % |   |   | 9.0 | % |   |   | 8.8 | % |   |   | 7.8 | % |   |   | 4.6 | % |
|                                                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted EBITDAR (6)                                                                |   | $                                     | 205,722   |   |   | $ | 241,950 |   |   | $ | 234,728 |   |   | $ | 192,536 |   |   | $ | 96,575 |   |
| Adjusted EBITDAR margin (6)                                                         |   |                                  | 10.8      | % |   |   | 12.9 | % |   |   | 12.9 | % |   |   | 12.4 | % |   |   | 9.8 | % |

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| (1)    | Results for the year ended December 31, 2010 include $29.1 million in transaction costs and $29.2 million in loss on extinguishment of debt due to the Separation.  The results also reflect an increase of $13.1 million of reserves for prior period self-insurance and other general liabilities and $0.4 million of transaction costs related to a hospice acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (2)    | Results for the year ended December 31, 2009 include an increase of $8.2 million of self-insurance reserves for general and professional liability and workers’ compensation related to prior years’ continuing operations, $1.3 million of restructuring costs and $0.5 million of transaction costs related to a hospice acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (3)    | Results for the year ended December 31, 2008 include a full year of revenues and expenses of Harborside Healthcare Corporation (“Harborside”), which was acquired on April 1, 2007, a release of $70.5 million of deferred tax valuation allowance, an increase of $0.9 million of self-insurance reserves for general and professional liability and workers’ compensation related to prior years’ continuing operations, and a gain of $0.9 million related to the sale of non-core business assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (4)    | Results for the year ended December 31, 2007 include the revenues and expenses of the Harborside centers since April 1, 2007, a release of $28.8 million of deferred tax valuation allowance, a reduction of $8.6 million of self-insurance reserves for general and professional liability and workers’ compensation related to prior years’ continuing operations, and a charge of $3.2 million related to the early extinguishment of debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (5)    | Results for the year ended December 31, 2006 include an $11.7 million release of self-insurance reserves for general and professional liability and workers’ compensation related to prior years’ continuing operations, a $2.5 million non-cash charge to account for certain lease rate escalation clauses, a net loss on sale of assets of $0.2 million and a $1.0 million charge for the termination of a management contract associated with the acquisition of hospice operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (6)    | We define EBITDA as net income before loss (gain) on discontinued operations, interest expense (net of interest income), income tax expense (benefit), depreciation and amortization.  EBITDA margin is EBITDA as a percentage of revenue.  Adjusted EBITDA is EBITDA adjusted for the following:· gain (loss) on sale of asset, net· restructuring costs· loss on extinguishment of debt, net· loss on contract termination Adjusted EBITDA margin is Adjusted EBITDA as a percentage of revenue.  Adjusted EBITDAR is Adjusted EBITDA before center rent expense.  Adjusted EBITDAR margin is Adjusted EBITDAR as a percentage of revenue. We believe that the presentation of EBITDA, Adjusted EBITDA and Adjusted EBITDAR provides useful information regarding our operational performance because they enhance the overall understanding of the financial performance and prospects for the future of our core business activities. Specifically, we believe that a presentation of EBITDA, Adjusted EBITDA and Adjusted EBITDAR provides consistency in our financial reporting and provides a basis for the comparison of results of core business operations between our current, past and future periods.  EBITDA, Adjusted EBITDA and Adjusted EBITDAR are three of the primary indicators we use for planning and forecasting in future periods, including trending and analyzing the core operating performance of our business from period-to-period without the effect of U.S. generally accepted accounting principles (“GAAP”), expenses, revenues and gains that are unrelated to the day-to-day performance of our business. We also use EBITDA, Adjusted EBITDA and Adjusted EBITDAR to benchmark the performance of our business against expected results, analyzing year-over-year trends as described below and to compare our operating performance to that of our competitors. In addition to other financial measures, including net segment income, we use EBITDA, Adjusted EBITDA and Adjusted EBITDAR to assess the performance of our core business operations, to prepare operating budgets and to measure our performance against those budgets on a consolidated, segment and a center-by-center level.  EBITDA, Adjusted EBITDA and Adjusted EBITDAR are useful in this regard because they do not include such costs as interest expense (net of interest income), income taxes, depreciation and amortization expense and special charges, which may vary from business unit to business unit and period-to-period depending upon various factors, including the method used to finance the business, the amount of debt that we have determined to incur, whether a center is owned or leased, the date of acquisition of a facility or business, the original purchase price of a facility or business unit or the tax law of the state in which a business unit operates. These types of charges are dependent on factors unrelated to our underlying business. As a result, we believe that the use of EBITDA, Adjusted EBITDA and Adjusted EBITDAR provides a meaningful and consistent comparison of our underlying business between periods by eliminating certain items required by GAAP which have little or no significance in our day-to-day operations. We also make capital allocations to each of our centers based on expected EBITDA returns and establish compensation programs and  |

----

|   | bonuses for our center-level employees that are based upon the achievement of pre-established EBITDA and Adjusted EBITDA targets. Despite the importance of these measures in analyzing our underlying business, maintaining our financial requirements, designing incentive compensation and for our goal setting both on an aggregate and facility level basis, EBITDA, Adjusted EBITDA and Adjusted EBITDAR are non-GAAP financial measures that have no standardized meaning defined by GAAP.  As the items excluded from EBITDA, Adjusted EBITDA and Adjusted EBITDAR are significant components in understanding and assessing our financial performance, EBITDA, Adjusted EBITDA and Adjusted EBITDAR should not be considered in isolation or as alternatives to net income, cash flows generated by or used in operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity.  Therefore, our EBITDA, Adjusted EBITDA and Adjusted EBITDAR measures have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.  Some of these limitations are: · they do not reflect our cash expenditures, or future requirements for capital expenditures, or    contractual commitments;· they do not reflect changes in, or cash requirements for, our working capital needs;· they do not reflect the interest expense, or the cash requirements necessary to service interest or    principal payments, on our debt;· they do not reflect any income tax payments we may be required to make;· although depreciation and amortization are non-cash charges, the assets being depreciated and   amortized will often have to be replaced in the future, and EBITDA, Adjusted EBITDA and   Adjusted EBITDAR do not reflect any cash requirements for such replacements;· they are not adjusted for all non-cash income or expense items that are reflected in our consolidated   statements of cash flows;· they do not reflect the impact on earnings of charges resulting from certain matters we consider    not to be indicative of our ongoing operations; and· other companies in our industry may calculate these measures differently than we do, which may limit   their usefulness as comparative measures. We compensate for these limitations by using EBITDA, Adjusted EBITDA and Adjusted EBITDAR only to supplement net income on a basis prepared in conformance with GAAP in order to provide a more complete understanding of the factors and trends affecting our business. We strongly encourage investors to consider net income determined under GAAP as compared to EBITDA, Adjusted EBITDA and Adjusted EBITDAR, and to perform their own analysis, as appropriate. The following table provides a reconciliation of our net (loss) income, which is the most directly comparable financial measure presented in accordance with GAAP for the periods indicated, to EBITDA, Adjusted EBITDA and Adjusted EBITDAR (in thousands): |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                |   | For the Years Ended December 31, |   |
|---------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                |   | 2010                             |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                                |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                                                   | $      | (4,650                           | )      | $ | 38,671 |   | $ | 109,287 |   | $ | 57,510 |   | $ | 27,118 |   |
|                                                                |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Plus:                                                               |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss (income) from discontinued      operations |   | 1,934                            |   |   | 4,409 |   |   | 5,222 |   |   | (3,229 | ) |   | (15,646 | ) |
| Interest expense, net of interest      income   |   | 43,064                           |   |   | 49,327 |   |   | 54,603 |   |   | 44,347 |   |   | 18,179 |   |
| Income tax expense (benefit)                                        |   | 2,964                            |   |   | 29,616 |   |   | (47,348 | ) |   | (10,914 | ) |   | (214 | ) |
| Depreciation and amortization                                       |   | 48,008                           |   |   | 45,453 |   |   | 40,348 |   |   | 31,216 |   |   | 14,576 |   |
| EBITDA                                                              | $      | 91,320                           |   | $ | 167,476 |   | $ | 162,112 |   | $ | 118,930 |   | $ | 44,013 |   |
|                                                                |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Plus:                                                               |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss (gain) on sale of assets, net                                  |   | 847                              |   |   | 42 |   |   | (977 | ) |   | 23 |   |   | 173 |   |
| Restructuring costs                                                 |   | -                                |   |   | 1,304 |   |   | - |   |   | - |   |   | - |   |
| Loss on extinguishment of debt                                      |   | 29,221                           |   |   | - |   |   | - |   |   | 3,173 |   |   | - |   |
| Loss on contract termination                                        |   | -                                |   |   | - |   |   | - |   |   | - |   |   | 975 |   |
| Adjusted EBITDA                                                     | $      | 121,388                          |   | $ | 168,822 |   | $ | 161,135 |   | $ | 122,126 |   | $ | 45,161 |   |
|                                                                |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Plus:                                                               |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Center rent expense                                                 |   | 84,334                           |   |   | 73,128 |   |   | 73,593 |   |   | 70,410 |   |   | 51,414 |   |
| Adjusted EBITDAR                                                    | $      | 205,722                          |   | $ | 241,950 |   | $ | 234,728 |   | $ | 192,536 |   | $ | 96,575 |   |
|                                                                |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| Ø       |  inpatient services, primarily skilled nursing centers; |
|--------------|--------------------------------------------------------------|
|  Ø |  rehabilitation therapy services; and                   |
|  Ø |  medical staffing services.                             |

----

| Cash                                                        | $$     | 66,862   |   |
|-------------------------------------------------------------|--------|----------|--------|
| Restricted cash                                             |   | 5,527    |   |
| Property and equipment, net of accumulated depreciation and |   |     |   |
| amortization of $91,878                                     |   | 484,801  |   |
| Intangible and other assets, net                            |   | 16,116   |   |
| Long-term debt and mortgage notes payable                   |   | (386,678 | )      |
| Accrued interest on mortgage notes payable                  |   | (1,425   | )      |
| Other accrued liabilities                                   |   | (2,326   | )      |
| Deferred tax liabilities                                    |   | (21,821  | )      |
| Due to Sun Healthcare Group, Inc.                           |   | (5,307   | )      |
| Net distribution                                            | $$     | 155,749  |   |

----

|                                   |   | For the Years Ended    |      |
|----------------------------------------|--------|------------------------|-----------|
| Sources of Revenues                    |   | December 31, 2010      |      |   | December 31, 2009 |   |   | December 31, 2008 |   |
|                                   |   | (dollars in thousands) |      |
| Consolidated:                          |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Medicaid                   |   | $                      | 771,128   |   |   |   | 40.5 | % |   | $ | 753,393 |   |   |   | 40.0 | % |   | $ | 729,014 |   |   |   | 40.0 | % |
|   Medicare                   |   |                   | 566,874   |   |   |   | 29.7 |   |   |   | 554,570 |   |   |   | 29.5 |   |   |   | 521,819 |   |   |   | 28.7 |   |
|   Private pay and other      |   |                   | 472,706   |   |   |   | 24.8 |   |   |   | 471,218 |   |   |   | 25.1 |   |   |   | 480,242 |   |   |   | 26.3 |   |
|   Managed care and           |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    commercial insurance |   |                   | 96,153    |   |   |   | 5.0 |   |   |   | 101,595 |   |   |   | 5.4 |   |   |   | 91,691 |   |   |   | 5.0 |   |
| Total                                  |   | $                      | 1,906,861 |   |   |   | 100.0 | % |   | $ | 1,880,776 |   |   |   | 100.0 | % |   | $ | 1,822,766 |   |   |   | 100.0 | % |
|                                   |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Inpatient Only:                        |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Medicaid                   |   | $                      | 770,978   |   |   |   | 45.4 | % |   | $ | 753,260 |   |   |   | 45.0 | % |   | $ | 728,882 |   |   |   | 45.1 | % |
|   Medicare                   |   |                   | 548,216   |   |   |   | 32.3 |   |   |   | 538,316 |   |   |   | 32.1 |   |   |   | 509,276 |   |   |   | 31.6 |   |
|   Private pay and other      |   |                   | 283,271   |   |   |   | 16.7 |   |   |   | 282,300 |   |   |   | 16.9 |   |   |   | 286,025 |   |   |   | 17.7 |   |
|   Managed care and           |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    commercial insurance |   |                   | 94,979    |   |   |   | 5.6 |   |   |   | 100,876 |   |   |   | 6.0 |   |   |   | 91,139 |   |   |   | 5.6 |   |
| Total                                  |   | $                      | 1,697,444 |   |   |   | 100.0 | % |   | $ | 1,674,752 |   |   |   | 100.0 | % |   | $ | 1,615,322 |   |   |   | 100.0 | % |

----

|   | 2010   |   | 2009   |   | 2008   |
|--------|--------|--------|--------|--------|--------|
| $      | 476.59 | $      | 455.02 | $      | 424.23 |

|   | · | If inpatient days of care provided to all patients at a hospice exceed 20% of the total days of hospice care provided by that hospice for an annual period, then payment for days in excess of this limit are paid for at the routine home care rate.  None of our hospice programs exceeded the payment limits on inpatient services for 2010 or 2009. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Overall payments made by Medicare on a per hospice program basis are subject to a cap amount at the end of an annual period.  The cap amount is calculated by multiplying the number of first time Medicare hospice beneficiaries during the year by the Medicare per beneficiary cap amount, resulting in that hospice’s aggregate cap, which is the allowable amount of total Medicare payments that hospice can receive for that cap year.  If a hospice program exceeds its aggregate cap, then the hospice must repay |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | the excess.  As of December 31, 2010, we had accrued $2.1 million for the repayment of Medicare payments received in excess of the cap limits. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2010   |   | 2009   |   | 2008   |
|--------|--------|--------|--------|--------|--------|
| $      | 173.62 | $      | 171.55 | $      | 166.62 |

|   | 2010   |   | 2009   |   | 2008   |
|--------|--------|--------|--------|--------|--------|
| $      | 159.79 | $      | 159.51 | $      | 157.08 |

----

|   | 2010   |   | 2009   |   | 2008   |
|--------|--------|--------|--------|--------|--------|
| $      | 374.02 | $      | 372.93 | $      | 351.93 |

|   | 2010   |   | 2009   |   | 2008   |
|--------|--------|--------|--------|--------|--------|
| $      | 188.05 | $      | 179.05 | $      | 172.50 |

----

|                                           |   |   |      |   |   |   |      |   |    |   | As a Percentage of Net Revenues |   |
|------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|---------|--------|---------------------------------|--------|
|                                           |   | 2010   |      |   | 2009   |   |      | 2008   |    |   | 2010                            |   |   | 2009 |   |   | 2008 |   |
|                                           |   |   |      |   |   |   |      |   |    |   |                            |   |   |   |   |   |   |   |
| Total net revenues                             |   | $      | 1,906,861 |   |   | $      | 1,880,776 |   |    | $      | 1,822,766                       |   |   |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |
| Costs and expenses:                            |   |   |      |   |   |   |      |   |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating salaries and benefits                |   |   | 1,077,859 |   |   |   | 1,056,265 |   |    |   | 1,027,872                       |   |   |   | 56.5 |   |   |   | 56.2 |   |   |   | 56.4 |   |
| Self-insurance for workers’ compensation |   |   |      |   |   |   |      |   |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| and general and professional liabilities       | 70,806 |   |      |   | 63,740 |   |      |   | 59,689  |   |                            |   | 3.7 |   |   |   | 3.4 |   |   |   | 3.3 |   |
| General and administrative expenses            |   |   | 60,842    |   |   |   | 62,068    |   |    |   | 62,302                          |   |   |   | 3.2 |   |   |   | 3.3 |   |   |   | 3.4 |   |
| Other operating costs (1)                      |   |   | 441,951   |   |   |   | 435,579   |   |    |   | 424,143                         |   |   |   | 23.2 |   |   |   | 23.2 |   |   |   | 23.3 |   |
| Center rent expense                            |   |   | 84,334    |   |   |   | 73,128    |   |    |   | 73,593                          |   |   |   | 4.4 |   |   |   | 3.9 |   |   |   | 4.0 |   |
| Depreciation and amortization                  |   |   | 48,008    |   |   |   | 45,453    |   |    |   | 40,348                          |   |   |   | 2.5 |   |   |   | 2.4 |   |   |   | 2.2 |   |
| Provision for losses on accounts receivable    | 20,568 |   |      |   | 21,174 |   |      |   | 14,032  |   |                            |   | 1.1 |   |   |   | 1.1 |   |   |   | 0.8 |   |
| Interest, net                                  |   |   | 43,064    |   |   |   | 49,327    |   |    |   | 54,603                          |   |   |   | 2.3 |   |   |   | 2.6 |   |   |   | 3.0 |   |
| Other expenses (income) (2)                    |   |   | 59,181    |   |   |   | 1,346     |   |    |   | (977                            | )      |   |   | 3.1 |   |   |   | - |   |   |   | (0.1 | ) |
| Income before income taxes and                 |   |   |      |   |   |   |      |   |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| discontinued operations                        |   |   | 248       |   |   |   | 72,696    |   |    |   | 67,161                          |   |   |   | - |   |   |   | 3.9 |   |   |   | 3.7 |   |
| Income tax expense (benefit)                   |   |   | 2,964     |   |   |   | 29,616    |   |    |   | (47,348                         | )      |   |   | 0.1 |   |   |   | 1.6 |   |   |   | (2.6 | ) |
| (Loss) income from continuing operations       | (2,716 | )      |      |   | 43,080 |   |      |   | 114,509 |   |                            |   | (0.1 | ) |   |   | 2.3 |   |   |   | 6.3 |   |
| Loss from discontinued operations              |   |   | (1,934    | )      |   |   | (4,409    | )      |    |   | (5,222                          | )      |   |   | (0.1 | ) |   |   | (0.2 | ) |   |   | (0.3 | ) |
| Net (loss) income                              |   | $      | (4,650    | )      |   | $      | 38,671    |   |    | $      | 109,287                         |   |   |   | (0.2 | )% |   |   | 2.1 | % |   |   | 6.0 | % |
|                                           |   |   |      |   |   |   |      |   |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental Financial Information:            |   |   |      |   |   |   |      |   |    |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA (3)                                     |   | $      | 91,320    |   |   | $      | 167,476   |   |    | $      | 162,112                         |   |   |   | 4.8 | % |   |   | 8.9 | % |   |   | 8.9 | % |
| Adjusted EBITDA (3)                            |   | $      | 121,388   |   |   | $      | 168,822   |   |    | $      | 161,135                         |   |   |   | 6.4 | % |   |   | 9.0 | % |   |   | 8.8 | % |
| Adjusted EBITDAR (3)                           |   | $      | 205,722   |   |   | $      | 241,950   |   |    | $      | 234,728                         |   |   |   | 10.8 | % |   |   | 12.9 | % |   |   | 12.9 | % |

----

----

|                            |    | 2010   |      |   | 2009   |   |   | 2008   |    |
|---------------------------------|---------|--------|-----------|--------|--------|--------|--------|--------|---------|
| Inpatient Services              |    | $      | 1,697,444 |   |   |   | 89.0   | %      |    | $ | 1,674,752 |   |   |   | 89.0 | % |   | $ | 1,615,322 |   |   |   | 88.6 | % |
| Rehabilitation Therapy Services | 206,088 |   |      |   | 10.8   |   |   |   | 179,532 |   |   |   | 9.5 |   |   |   | 150,475 |   |   |   | 8.3 |   |
| Medical Staffing Services       |    |   | 91,801    |   |   |   | 4.8    |   |    |   | 102,554 |   |   |   | 5.5 |   |   |   | 120,410 |   |   |   | 6.6 |   |
| Corporate                       |    |   | 40        |   |   |   | 0.0    |   |    |   | 34 |   |   |   | 0.0 |   |   |   | 37 |   |   |   | 0.0 |   |
| Intersegment eliminations       |    |   | (88,512   | )      |   |   | (4.6   | )      |    |   | (76,096 | ) |   |   | (4.0 | ) |   |   | (63,478 | ) |   |   | (3.5 | ) |
| Total net revenues              |    | $      | 1,906,861 |   |   |   | 100.0  | %      |    | $ | 1,880,776 |   |   |   | 100.0 | % |   | $ | 1,822,766 |   |   |   | 100.0 | % |

|                            |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Rehabilitation Therapy Services |   | $      | 86,476 |   |   | $      | 74,166 |   |   | $ | 60,856 |   |
| Medical Staffing Services       |   |   | 2,036  |   |   |   | 1,930  |   |   |   | 2,622 |   |
| Total affiliated revenues       |   | $      | 88,512 |   |   | $      | 76,096 |   |   | $ | 63,478 |   |

----

|                                |   | 2010   |     |   | 2009   |   |     | 2008   |   |
|-------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
| Inpatient Services                  |   | $      | 150,744  |   |   | $      | 156,685  |   |   | $ | 154,866 |   |
| Rehabilitation Therapy Services     |   |   | 14,073   |   |   |   | 11,112   |   |   |   | 8,462 |   |
| Medical Staffing Services           |   |   | 5,595    |   |   |   | 8,610    |   |   |   | 9,690 |   |
| Net segment income before Corporate |   |   | 170,412  |   |   |   | 176,407  |   |   |   | 173,018 |   |
| Corporate                           |   |   | (110,983 | )      |   | $      | (102,365 | )      |   | $ | (106,834 | ) |
| Net segment income                  |   | $      | 59,429   |   |   |   | 74,042   |   |   |   | 66,184 |   |

| -      | an increase of $19.3 million in Medicaid revenues, driven by increases in customer base and rates, which drove $10.5 million and $8.8 million of the increase, respectively;                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                |
| -      | an increase of $14.6 million in hospice revenues due to an acquisition and internal growth; and                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                |
| -      | an increase of $2.5 million in other revenues including veterans and other various inpatient services;                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                |
|   | offset by                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                |
| -      | a $6.2 million decrease in managed care and commercial insurance revenues due to a lower customer base;                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                |
| -      | a $4.9 million decrease in private revenues also due to a lower customer base; and                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                |
| -      | a $2.6 million decrease in Medicare revenues due to a lower customer base, which was mitigated by  increases in Medicare Part A rates and Medicare Part B revenues, which resulted in increased revenues of $21.1 million and $0.9 million, respectively. |

| -      | increases in compensation and related benefits and taxes of $7.2 million to remain competitive in local markets; |
|--------|------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                             |
|   | offset by                                                                                                        |

----

|   |                                             |
|--------|--------------------------------------------------|
| -      | a decrease of $2.6 million in overtime expenses. |

| -      | a $9.4 million increase in therapy, pharmacy and medical supplies attributable to patient mix as well an increase in the number of new Rehab Recovery Suites coming on line; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                              |
| -      | a $6.7 million increase in taxes (primarily provider taxes and real estate taxes);                                                                                                |
|   |                                                                                                                                                                              |
| -      | a $4.4 million increase in purchased services of which a majority of the increase was in service contracts, software maintenance and collection agency expense;                   |
|   |                                                                                                                                                                              |
| -      | a $1.0 million increase in utility costs;                                                                                                                                         |
|   |                                                                                                                                                                              |
| -      | a $0.8 million increase in legal fees;                                                                                                                                            |
|   |                                                                                                                                                                              |
| -      | a $0.7 million increase in other supplies costs, principally food costs;                                                                                                          |
|   |                                                                                                                                                                              |
| -      | a $0.7 million increase in rebates and vendor discounts; and                                                                                                                      |
|   |                                                                                                                                                                              |
| -      | a $0.5 million increase in contract nursing labor;                                                                                                                                |
|   |                                                                                                                                                                              |
|   | offset by                                                                                                                                                                         |
|   |                                                                                                                                                                              |
| -      | a $1.4 million decrease in equipment rental;                                                                                                                                      |
|   |                                                                                                                                                                              |
| -      | a $1.2 million decrease in training and recruitment costs;                                                                                                                        |
|   |                                                                                                                                                                              |
| -      | a $1.0 million decrease in nursing and ancillary services consultant costs; and                                                                                                   |
|   |                                                                                                                                                                              |
| -      | a $0.3 million decrease in office lease costs.                                                                                                                                    |

----

| -      | a $8.1 million decrease in staffing other medical professionals due to a decline of 82,600 hours; |
|--------|---------------------------------------------------------------------------------------------------|
|   |                                                                                              |
| -      | a decrease in locum tenens (physician placement) business of $3.3 million; and                    |
|   |                                                                                              |
| -      | a $0.1 million decrease due to nursing offices permanently closed in 2009;                        |
|   |                                                                                              |
|   | offset by                                                                                         |
|   |                                                                                              |
| -      | a $0.7 million increase in the nurse staffing business.                                           |

----

----

| -      | an increase of $35.6 million in Medicare revenues driven by increases in Medicare Part A rates and Medicare Part B revenues, which drove $31.6 million and $4.0 million of the increase, respectively; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                   |
| -      | an increase of $24.3 million in Medicaid revenues, driven by increases in rates and customer base, which drove $21.0 million and $3.3 million of the increase, respectively;                           |

----

| -      | an increase of $15.2 million in hospice revenues due to an acquisition and internal growth; and                                                                                                   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                              |
| -      | a $9.5 million increase in managed and commercial insurance revenues driven by a higher customer base and higher rates, which caused $4.2 million and $5.3 million of the increase, respectively; |
|   |                                                                                                                                                                                              |
| -      | an $8.9 million increase in revenues from private sources due to higher rates;                                                                                                                    |
|   |                                                                                                                                                                                              |
| -      | an increase of $0.3 million in other revenue including veterans and other various inpatient services;                                                                                             |
|   |                                                                                                                                                                                              |
|   | offset by                                                                                                                                                                                         |
|   |                                                                                                                                                                                              |
| -      | a $20.2 million decrease in Medicare revenues due to a lower customer base; and                                                                                                                   |
|   |                                                                                                                                                                                              |
| -      | a $14.1 million decrease in private revenues also due to a lower customer base.                                                                                                                   |

| -      | increases in compensation and related benefits and taxes of $24.8 million to remain competitive in local markets; |
|--------|-------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                              |
|   | offset by                                                                                                         |
|   |                                                                                                              |
| -      | a decrease of $7.8 million in overtime expenses.                                                                  |

| -      | a $15.1 million increase in therapy, pharmacy and medical supplies attributable to patient mix as well an increase in the number of new Rehab Recovery Suites coming on line; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                               |
| -      | a $12.0 million increase in taxes (primarily provider taxes and real estate taxes);                                                                                                |
|   |                                                                                                                                                                               |
| -      | a $4.3 million increase in purchased services of which a majority of the increase was in service contracts and software maintenance;                                               |
|   |                                                                                                                                                                               |
| -      | a $1.0 million increase in legal fees; and                                                                                                                                         |
|   |                                                                                                                                                                               |
| -      | a $0.5 million increase in acquisition transaction costs related to an acquisition of a hospice                                                                                    |

----

|   | company;                                                 |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | Offset by                                                |
|   |                                                     |
| -      | a $2.5 million decrease in contract nursing labor;       |
|   |                                                     |
| -      | a $1.2 million decrease in equipment rental;             |
|   |                                                     |
| -      | a $1.2 million increase in vendor discounts and rebates; |
|   |                                                     |
| -      | a $1.2 million decrease in help wanted;                  |
|   |                                                     |
| -      | a $1.1 million decrease in civil monetary penalties; and |
|   |                                                     |
| -      | a $0.1 million decrease in travel and vehicle expenses.  |

----

| -      | a $11.2 million decrease in the nurse staffing business;                                       |
|--------|------------------------------------------------------------------------------------------------|
|   |                                                                                           |
| -      | a $5.4 million decrease in staffing other medical professionals due to a decline in hours; and |
|   |                                                                                           |
| -      | a $2.4 million decrease due to nursing offices permanently closed in 2008;                     |
|   |                                                                                           |
|   | offset by                                                                                      |
|   |                                                                                           |
| -      | an increase in locum tenens (physician placement) business of $1.2 million.                    |

----

----

----

----

|                     |   | Payments Due by Period |      |
|--------------------------|--------|------------------------|-----------|
|                     |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | After |   |
|                     |   | Total                  |      |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |   | 2015 |   |   | 2015 |   |
| Contractual Obligations: |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt, including interest |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| payments (1)             |   | $                      | 249,081   |   |   | $ | 28,035 |   |   | $ | 27,288 |   |   | $ | 26,541 |   |   | $ | 25,323 |   |   | $ | 24,084 |   |   | $ | 117,810 |   |
| Capital leases (2)       |   |                   | 587       |   |   |   | 336 |   |   |   | 194 |   |   |   | 51 |   |   |   | 6 |   |   |   | - |   |   |   | - |   |
| Construction commitments |   |                   | 9,387     |   |   |   | 9,387 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Purchase obligations (3) |   |                   | 373,080   |   |   |   | 101,880 |   |   |   | 101,880 |   |   |   | 79,080 |   |   |   | 56,280 |   |   |   | 33,960 |   |   |   | - |   |
| Operating leases (4)     |   |                   | 1,199,645 |   |   |   | 147,256 |   |   |   | 143,121 |   |   |   | 139,600 |   |   |   | 110,483 |   |   |   | 108,637 |   |   |   | 550,548 |   |
| Other liabilities (5)    |   |                   | 6,173     |   |   |   | - |   |   |   | 6,173 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                     |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                    |   | $                      | 1,837,953 |   |   | $ | 286,894 |   |   | $ | 278,656 |   |   | $ | 245,272 |   |   | $ | 192,092 |   |   | $ | 166,681 |   |   | $ | 668,358 |   |

|                          |   | Amount of Commitment Expiration Per Period |   |
|-------------------------------|--------|--------------------------------------------|--------|
|                          |   | Total                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   | Amounts                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | After |   |
|                          |   | Committed                                  |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |   | 2015 |   |   | 2015 |   |
| Other Commercial Commitments: |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Letters of credit (6)         |   | $                                          | 66,169 |   |   | $ | 66,169 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
|                          |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                         |   | $                                          | 66,169 |   |   | $ | 66,169 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |

| (1) | Debt includes principal payments and interest payments through the maturity dates. Total interest on debt, based on contractual rates, is $93.6 million, of which $88.9 million is attributable to variable interest rates determined using the weighted average method.                                                                                                                                             |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes interest of $0.1 million.                                                                                                                                                                                                                                                                                                                                                                                   |
| (3) | Represents our estimated level of purchasing from our main suppliers assuming that we continue to operate the same number of centers in future periods.                                                                                                                                                                                                                                                              |
| (4) | Some of our operating leases also have contingent rentals.                                                                                                                                                                                                                                                                                                                                                           |
| (5) | $6.2 million of liability due to the previous shareholders of Harborside when certain tax benefits associated with that acquisition are realized.  Excludes liabilities for uncertain tax positions that are included in other liabilities at December 31, 2010 for which we are unable to make a reasonably reliable estimate as to when, if at all, cash settlements with taxing authorities will occur. |
| (6) | Letters of credit expire annually but may be reissued pursuant to a $75.0 million letter of credit facility that terminates in October 2016.                                                                                                                                                                                                                                                                         |

----

----

----

| Inpatient Services – Healthcare facilities reporting unit |   | $      | 314,729 |   |
|-----------------------------------------------------------------|--------|--------|---------|--------|
| Inpatient Services – Hospice services reporting unit      |   |   | 28,710  |   |
| Rehabilitation Therapy Services segment                         |   |   | 75      |   |
| Medical Staffing Services segment                               |   |   | 4,533   |   |
| Total goodwill                                                  |   | $      | 348,047 |   |

----

----

----

|               |                        | Expected Maturity Dates                                                                                                                      |   |   |   |   |   | Fair Value |   |   | Fair Value |   |
|--------------------|-----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|------------|--------|
|               |                        |                                                                                                                                         |   |   |   |   |   |       |   |   |       |   |   |   |   |   |   |   |   |   |   |   | December 31, |   |   December 31, |
|               |                        | 2011                                                                                                                                         |   |   | 2012   |   |   | 2013       |   |   | 2014       |   |   | 2015 |   |   | Thereafter |   |   | Total |   |   | 2010 (1) |   |   | 2009 (1) |   |
|               |                        | (Dollars in thousands)                                                                                                                       |   |
| Long-term Debt:    |                        |                                                                                                                                         |   |   |   |   |   |       |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed rate debt    | $                           | 1,050                                                                                                                                        |   | $      | 1,002  |   | $      | 949        |   | $      | 517        |   | $ | 65 |   | $ | 4,897 |   | $ | 8,480 |   | $ | 8,584 |   | $ | 488,393 |   |
| Rate               |                        | 7.5                                                                                                                                          | %      |   | 7.3    | %      |   | 7.0        | %      |   | 6.8        | %      |   | 6.7 | % |   | 6.7 | % |   |   |   |   |   |   |   |   |   |
| Variable rate debt | $                           | 10,000                                                                                                                                       |   | $      | 10,000 |   | $      | 10,000     |   | $      | 10,000     |   | $ | 10,000 |   | $ | 97,500 |   | $ | 147,500 |   | $ | 147,500 |   | $ | 202,557 |   |
| Rate               |                        | 7.5                                                                                                                                          | %      |   | 7.5    | %      |   | 7.5        | %      |   | 7.5        | %      |   | 7.5 | % |   | 7.5 | % |   |   |   |   |   |   |   |   |   |
|               |                        |                                                                                                                                         |   |   |   |   |   |       |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|               | (1)     | The fair value of fixed and variable rate debt was determined based on the current rates offered for debt with similar risks and maturities. |   |

----

----

| (a)    | (1)    | The following consolidated financial statements of Sun Healthcare Group, Inc. and subsidiaries are filed as part of this report under Item 8 – “Financial Statements and Supplementary Data”: |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                            |
|   |   | Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm                                                                                                                             |
|   |   |
|   |   | Consolidated Balance Sheets as of December 31, 2010 and 2009                                                                                                                                                    |
|   |   |                                                                                                                                                                                                            |

----

|   |   |
|--------|--------|
|   |   | Consolidated Income Statements for the years ended December 31, 2010, 2009 and 2008 |
|   |   |   |
|   |   | Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended December 31, 2010, 2009 and 2008 |
|   |   |   |
|   |   | Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 |
|   |   |   |
|   |   | Notes to Consolidated Financial Statements |
|   |   |   |
|   | (2)    | Financial schedules required to be filed by Item 8 of this form, and by Item 15(a)(2) below: |
|   |   |   |
|   |   | Schedule II Valuation and Qualifying Accounts for the years ended December 31, 2010, 2009 and 2008 |
|   |   |   |
|   |   | All other financial schedules are not required under the related instructions or are inapplicable and therefore have been omitted. |
|   |   |   |
|   | (3)    | Exhibits |

| Exhibit      |                                                                                                                                                                                         |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Number       | Description of Exhibits                                                                                                                                                                      |
|         |                                                                                                                                                                                         |
| 2.1(1)       | Agreement and Plan of Merger dated October 19, 2006 by and among Sun Healthcare Group, Inc., Horizon Merger, Inc. and Harborside Healthcare Corporation                                      |
|         |                                                                                                                                                                                         |
| 2.2(8)± | Distribution Agreement, dated November 4, 2010, by and among Sun Healthcare Group, Inc. (Old Sun), Sabra Health Care REIT, Inc. and Sun Healthcare Group, Inc. (formerly SHG Services, Inc.) |
|         |                                                                                                                                                                                         |
| 3.1*         | Amended and Restated Certificate of Incorporation of Sun Healthcare Group, Inc., as amended                                                                                                  |
|         |                                                                                                                                                                                         |
| 3.2*         | Amended and Restated Bylaws of Sun Healthcare Group, Inc.                                                                                                                                    |
|         |                                                                                                                                                                                         |
| 10.1(2)      | Credit Agreement, dated as of October 18, 2010, among Sun Healthcare Group, Inc., the Lenders named therein and Credit Suisse, as Administrative Agent and Collateral Agent for the Lenders  |
|         |                                                                                                                                                                                         |
| 10.2*+       | Sun Healthcare Group, Inc. 2004 Equity Incentive Plan                                                                                                                                        |
|         |                                                                                                                                                                                         |
| 10.3*+       | Sun Healthcare Group, Inc. 2009 Performance Incentive Plan                                                                                                                                   |
|         |                                                                                                                                                                                         |
| 10.4*+       | Form of Stock Option Agreement                                                                                                                                                               |
|         |                                                                                                                                                                                         |
| 10.5*+       | Form of Stock Unit Agreement for employees                                                                                                                                                   |
|         |                                                                                                                                                                                         |
| 10.6*+       | Form of Stock Unit Agreement for non-employee directors                                                                                                                                      |

----

| 10.7*+     | Non-employee Directors Stock-for-Fees Program and Payment Election Form                                                                                                                                                                                                                                                              |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.8(3)+   | Amended and Restated Employment Agreement by and between Sun Healthcare Group, Inc. and L. Bryan Shaul dated as of December 17, 2008                                                                                                                                                                                                 |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.9(4)+   | Employment Agreement by and between Sun Healthcare Group, Inc. and William A.  Mathies dated as of November 18, 2010                                                                                                                                                                                                       |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.10(3)+  | Amended and Restated Employment Agreement by and between Sun Healthcare Group, Inc. and Michael Newman dated as of December 17, 2008                                                                                                                                                                                                 |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.11(3)+  | Amended and Restated Employment Agreement by and between Sun Healthcare Group, Inc. and Chauncey J. Hunker dated as of December 17, 2008                                                                                                                                                                                             |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.12*+    | Non-Employee Director Compensation Policy of Sun Healthcare Group, Inc.                                                                                                                                                                                                                                                              |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.13(9)   | Tax Allocation Agreement, dated as of September 23, 2010, by and among Sun Healthcare Group, Inc. (Old Sun), Sabra Health Care REIT, Inc. and Sun Healthcare Group, Inc. (formerly SHG Services, Inc.)                                                                                                                               |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.14(5)   | Third Amended and Restated Master Lease Agreement among Sun Healthcare Group, Inc. and certain of its subsidiaries (as Lessees) and Omega Healthcare Investors, Inc. and certain of its subsidiaries (as Lessors) dated November 4, 2010                                                                                             |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.14.1(5) | Guaranty dated November 4, 2010 by Sun Healthcare Group, Inc. in favor of Lessors under the Third Amended and Restated Master Lease Agreement dated November 4, 2010 among Sun Healthcare Group, Inc. and certain of its subsidiaries (as Lessees) and Omega Healthcare Investors, Inc. and certain of its subsidiaries (as Lessors) |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.15(5)   | Form of Indemnification Agreement entered into with each of the directors and officers of Sun Healthcare Group, Inc. and certain of its subsidiaries                                                                                                                                                                                 |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.16(10)+ | Sun Healthcare Group, Inc. Deferred Compensation Plan                                                                                                                                                                                                                                                                                |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.17(6)+  | Amended and Restated Severance Benefits Agreement dated as of December 17, 2008 by and between Richard L. Peranton and CareerStaff Unlimited, Inc.                                                                                                                                                                                   |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.18(7)+  | Amended and Restated Severance Benefits Agreement dated as of December 17, 2008 by and between Sue Gwyn and SunDance Rehabilitation Corporation                                                                                                                                                                                      |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.19(8)   | Transition Services Agreement, dated November 4, 2010, by and between Sun Healthcare Group, Inc. (formerly SHG Services, Inc.) and Sabra Health Care REIT, Inc.                                                                                                                                                                      |
|       |                                                                                                                                                                                                                                                                                                                                 |
| 10.20(8)   | Form of Master Lease Agreement entered into between subsidiaries of Sun Healthcare Group, Inc. (formerly SHG Services, Inc.) and subsidiaries of Sabra Health Care REIT, Inc.                                                                                                                                                        |
|       |                                                                                                                                                                                                                                                                                                                                 |

----

| 10.20.1(8) | Form of Guaranty entered into by Sun Healthcare Group, Inc. (formerly SHG Services, Inc.) in favor of subsidiaries of Sabra Health Care REIT, Inc., as landlords under the Master Lease Agreements. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                |
| 21.1*      | Subsidiaries of Sun Healthcare Group, Inc.                                                                                                                                                          |
|       |                                                                                                                                                                                                |
| 23.1*      | Consent of PricewaterhouseCoopers LLP                                                                                                                                                               |
|       |                                                                                                                                                                                                |
| 31.1*      | Section 302 Sarbanes-Oxley Certifications by Principal Executive Officer                                                                                                                            |
|       |                                                                                                                                                                                                |
| 31.2*      | Section 302 Sarbanes-Oxley Certifications by Principal Financial and Accounting Officer                                                                                                             |
|       |                                                                                                                                                                                                |
| 32.1*      | Section 906 Sarbanes-Oxley Certifications by Principal Executive Officer                                                                                                                            |
|       |                                                                                                                                                                                                |
| 32.2*      | Section 906 Sarbanes-Oxley Certifications by Principal Financial and Accounting Officer                                                                                                             |

| ± | Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby agrees to furnish supplementally copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (1)  | Incorporated by reference from exhibits to our Form 8-K filed on October 25, 2006   |
|------|-------------------------------------------------------------------------------------|
| (2)  | Incorporated by reference from exhibits to our Form 8-K filed on October 22, 2010   |
| (3)  | Incorporated by reference from exhibits to our Form 10-K filed on March 4, 2009     |
| (4)  | Incorporated by reference from exhibits to our Form 8-K filed on November 23, 2010  |
| (5)  | Incorporated by reference from exhibits to our Form 8-K filed on November 16, 2010  |
| (6)  | Incorporated by reference from exhibits to our Form 10-Q filed on August 7, 2009    |
| (7)  | Incorporated by reference from exhibits to our Form 10-K filed on March 5, 2010     |
| (8)  | Incorporated by reference from exhibits to our Form 8-K filed on November 5, 2010   |
| (9)  | Incorporated by reference from exhibits to our Form 8-K filed on September 29, 2010 |
| (10) | Incorporated by reference from exhibits to our Form 10-Q filed on April 29, 2009    |

----

|   | SUN HEALTHCARE GROUP, INC.                                                                                                                                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                  |
|   | By:    /s/ L. Bryan Shaul                             |
|   |        L. Bryan Shaul                                                                                                                                                              |
|   |        Chief Financial Officer                                                                                                                                                     |

----

| Signatures                                                                                                                                                                                             |   | Title                                                           | Date              |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|-------------------|
|                                                                                                                                                                                                   |   |                                                            |              |
|                                                                                                                                                                                                   |   | Chairman of the Board and ChiefExecutive Officer                |              |
|   /s/ William A. Mathies                                                                 |   | (Principal Executive Officer)                                   | February 28, 2011 |
|    William A. Mathies                                                                                                                                                                   |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|                                                                                                                                                                                                   |   | Executive Vice President and Chief Financial Officer (Principal |              |
|   /s/ L. Bryan Shaul                             |   | Financial and Accounting Officer)                               | February 28, 2011 |
|    L. Bryan Shaul                                                                                                                                                                       |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|   /s/ Gregory S. Anderson                                                                          |   | Director                                                        | March 2, 2011     |
|    Gregory S. Anderson                                                                                                                                                                  |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|   /s/ Tony M. Astorga                                           |   | Director                                                        | February 25, 2011 |
|    Tony M. Astorga                                                                                                                                                                      |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|   /s/ Christian K. Bement                                                                     |   | Director                                                        | February 25, 2011 |
|    Christian K. Bement                                                                                                                                                                  |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|   /s/ Michael J. Foster                                              |   | Director                                                        | March 2, 2011     |
|    Michael J. Foster                                                                                                                                                                    |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|   /s/ Barbara B. Kennelly                                                                     |   | Director                                                        | February 25, 2011 |
|    Barbara B. Kennelly                                                                                                                                                                  |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|   /s/ Milton J. Walters                                                   |   | Director                                                        | March 2, 2011     |
|    Milton J. Walters                                                                                                                                                                    |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |
|                                                                                                                                                                                                   |   |                                                            |              |

----

|                                                                                | Page             |
|-------------------------------------------------------------------------------------|------------------|
|                                                                                |             |
| Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm | F-2              |
|                                                                                |             |
| Consolidated Balance Sheets                                                         | F-3– F-4   |
| As of December 31, 2010 and 2009                                                    |             |
|                                                                                |             |
| Consolidated Statements of Operations                                               | F-5              |
| For the years ended December 31, 2010, 2009 and 2008                                |             |
|                                                                                |             |
| Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss)      | F-6              |
| Income for the years ended December 31, 2010, 2009 and 2008                         |             |
|                                                                                |             |
| Consolidated Statements of Cash Flows                                               | F-7 – F-8  |
| For the years ended December 31, 2010, 2009 and 2008                                |             |
|                                                                                |             |
| Notes to Consolidated Financial Statements                                          | F-9 – F-45 |
|                                                                                |             |
| Supplementary Data (Unaudited) - Quarterly Financial Data                           | 1 – 3      |
|                                                                                |             |
| Schedule II – Valuation and Qualifying Accounts                               | 4                |

----

----

|                                                                        |    | December 31, 2010 |      |   | December 31, 2009 |   |
|-----------------------------------------------------------------------------|---------|-------------------|-----------|--------|-------------------|--------|
|                                                                        |    |              |      |   |              |   |
| Current assets:                                                             |    |              |      |   |              |   |
| Cash and cash equivalents                                                   |    | $                 | 81,163    |   |              | $      | 104,483 |   |
| Restricted cash                                                             |    |              | 15,329    |   |              |   | 24,034 |   |
| Accounts receivable, net of allowance for doubtful accounts of $66,607      |    |              |
| and $55,402 at December 31, 2010 and 2009, respectively                |    |              | 218,040   |   |              |   | 220,319 |   |
| Prepaid expenses and other assets                                           |    |              | 16,859    |   |              |   | 21,757 |   |
| Deferred tax assets                                                         |    |              | 69,800    |   |              |   | 68,415 |   |
|                                                                        |    |              |      |   |              |   |   |   |
| Total current assets                                                        |    |              | 401,191   |   |              |   | 439,008 |   |
|                                                                        |    |              |      |   |              |   |   |   |
| Property and equipment, net of accumulated depreciation and amortization    |    |              |      |
| of $102,897 and $153,854 at December 31, 2010 and 2009, respectively        | 139,860 |              |      |   | 622,682           |   |
| Intangible assets, net of accumulated amortization of $12,506 and $9,760 at |    |              |      |
| December 31, 2010 and 2009, respectively                                    |    |              | 41,967    |   |              |   | 38,628 |   |
| Goodwill                                                                    |    |              | 348,047   |   |              |   | 338,296 |   |
| Restricted cash, non-current                                                |    |              | 350       |   |              |   | 3,317 |   |
| Deferred tax assets                                                         |    |              | 126,540   |   |              |   | 108,999 |   |
| Other assets                                                                |    |              | 23,803    |   |              |   | 20,264 |   |
| Total assets                                                                |    | $                 | 1,081,758 |   |              | $      | 1,571,194 |   |

----

|                                                                                         |   | December 31, 2010 |      |   | December 31, 2009 |   |
|----------------------------------------------------------------------------------------------|--------|-------------------|-----------|--------|-------------------|--------|
| Current liabilities:                                                                         |   |              |      |   |              |   |
| Accounts payable                                                                             |   | $                 | 49,993    |   |              | $      | 57,109 |   |
| Accrued compensation and benefits                                                            |   |              | 61,518    |   |              |   | 58,953 |   |
| Accrued self-insurance obligations, current portion                                          |   |              | 52,093    |   |              |   | 45,661 |   |
| Other accrued liabilities                                                                    |   |              | 53,945    |   |              |   | 55,265 |   |
| Current portion of long-term debt and capital lease obligations                              |   |              | 11,050    |   |              |   | 46,416 |   |
|                                                                                         |   |              |      |   |              |   |   |   |
| Total current liabilities                                                                    |   |              | 228,599   |   |              |   | 263,404 |   |
|                                                                                         |   |              |      |   |              |   |   |   |
| Accrued self-insurance obligations, net of current portion                                   |   |              | 133,405   |   |              |   | 121,948 |   |
| Long-term debt and capital lease obligations, net of current portion                         |   |              | 144,930   |   |              |   | 654,132 |   |
| Unfavorable lease obligations, net of accumulated amortization of                            |   |              |      |   |              |   |   |   |
| $19,298 and $16,450 at December 31, 2010 and 2009, respectively                              |   |              | 9,815     |   |              |   | 12,663 |   |
| Other long-term liabilities                                                                  |   |              | 52,566    |   |              |   | 69,983 |   |
|                                                                                         |   |              |      |   |              |   |   |   |
| Total liabilities                                                                            |   |              | 569,315   |   |              |   | 1,122,130 |   |
|                                                                                         |   |              |      |   |              |   |   |   |
| Commitments and contingencies (Note 8)                                                       |   |              |      |   |              |   |   |   |
|                                                                                         |   |              |      |   |              |   |   |   |
| Stockholders' equity:                                                                        |   |              |      |   |              |   |   |   |
| Preferred stock of $.01 par value, authorized 3,333,333                                      |   |              |      |   |              |   |   |   |
| shares, zero shares issued and outstanding as of December 31, 2010                           |   |              |
| and authorized 10,000,000 shares, zero shares issued and outstanding as of December 31, 2009 |   |              | -         |   |              |   | - |   |
| Common stock of $.01 par value, authorized 41,666,667 shares,                                |   |              |      |   |              |   |   |   |
| 24,973,693 shares issued and outstanding as of December 31, 2010                             |   |              |
| and authorized 125,000,000 shares, 43,764,240 shares issued and                              |   |              |      |   |              |   |   |   |
| outstanding as of December 31, 2009                                                          |   |              | 250       |   |              |   | 438 |   |
| Additional paid-in capital                                                                   |   |              | 720,854   |   |              |   | 655,666 |   |
| Accumulated deficit                                                                          |   |              | (208,661  | )      |              |   | (204,011 | ) |
| Accumulated other comprehensive loss, net                                                    |   |              | -         |   |              |   | (3,029 | ) |
| Total stockholders' equity                                                                   |   |              | 512,443   |   |              |   | 449,064 |   |
| Total liabilities and stockholders' equity                                                   |   | $                 | 1,081,758 |   |              | $      | 1,571,194 |   |

----

|                                                                     |   | For the Years Ended December 31, |      |
|--------------------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                                     |   | 2010                             |      |   | 2009 |   |   | 2008 |   |
|                                                                     |   |                             |      |   |   |   |   |   |   |
| Total net revenues                                                       |   | $                                | 1,906,861 |   |   | $ | 1,880,776 |   |   | $ | 1,822,766 |   |
| Costs and expenses:                                                      |   |                             |      |   |   |   |   |   |   |   |   |   |
| Operating salaries and benefits                                          |   |                             | 1,077,859 |   |   |   | 1,056,265 |   |   |   | 1,027,872 |   |
| Self-insurance for workers' compensation and general                     |   |                             |      |   |   |   |   |   |   |   |   |   |
| and professional liability insurance                                     |   |                             | 70,806    |   |   |   | 63,740 |   |   |   | 59,689 |   |
| Operating administrative expenses                                        |   |                             | 51,943    |   |   |   | 50,924 |   |   |   | 51,171 |   |
| Other operating costs                                                    |   |                             | 390,008   |   |   |   | 384,655 |   |   |   | 372,972 |   |
| Center rent expense                                                      |   |                             | 84,334    |   |   |   | 73,128 |   |   |   | 73,593 |   |
| General and administrative expenses                                      |   |                             | 60,842    |   |   |   | 62,068 |   |   |   | 62,302 |   |
| Depreciation and amortization                                            |   |                             | 48,008    |   |   |   | 45,453 |   |   |   | 40,348 |   |
| Provision for losses on accounts receivable                              |   |                             | 20,568    |   |   |   | 21,174 |   |   |   | 14,032 |   |
| Interest, net of interest income of $315, $383, and $1,781, respectively |   |                             | 43,064    |   |   |   | 49,327 |   |   |   | 54,603 |   |
| Loss on extinguishment of debt                                           |   |                             | 29,221    |   |   |   | - |   |   |   | - |   |
| Transaction costs                                                        |   |                             | 29,113    |   |   |   | - |   |   |   | - |   |
| Loss (gain) on sale of assets, net                                       |   |                             | 847       |   |   |   | 42 |   |   |   | (977 | ) |
| Restructuring costs                                                      |   |                             | -         |   |   |   | 1,304 |   |   |   | - |   |
| Total costs and expenses                                                 |   |                             | 1,906,613 |   |   |   | 1,808,080 |   |   |   | 1,755,605 |   |
|                                                                     |   |                             |      |   |   |   |   |   |   |   |   |   |
| Income before income taxes and discontinued operations                   |   |                             | 248       |   |   |   | 72,696 |   |   |   | 67,161 |   |
| Income tax expense (benefit)                                             |   |                             | 2,964     |   |   |   | 29,616 |   |   |   | (47,348 | ) |
| (Loss) income from continuing operations                                 |   |                             | (2,716    | ) |   |   | 43,080 |   |   |   | 114,509 |   |
|                                                                     |   |                             |      |   |   |   |   |   |   |   |   |   |
| Discontinued operations:                                                 |   |                             |      |   |   |   |   |   |   |   |   |   |
| Loss from discontinued operations, net of related taxes                  |   |                             | (1,934    | ) |   |   | (4,076 | ) |   |   | (2,221 | ) |
| Loss on disposal of discontinued operations, net of related taxes        |   |                             | -         |   |   |   | (333 | ) |   |   | (3,001 | ) |
| Loss from discontinued operations                                        |   |                             | (1,934    | ) |   |   | (4,409 | ) |   |   | (5,222 | ) |
|                                                                     |   |                             |      |   |   |   |   |   |   |   |   |   |
| Net (loss) income                                                        |   | $                                | (4,650    | ) |   | $ | 38,671 |   |   | $ | 109,287 |   |
|                                                                     |   |                             |      |   |   |   |   |   |   |   |   |   |
| Basic earnings per common and common equivalent share:                   |   |                             |      |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations                                 |   | $                                | (0.14     | ) |   | $ | 2.95 |   |   | $ | 7.93 |   |
| Loss from discontinued operations, net                                   |   |                             | (0.10     | ) |   |   | (0.30 | ) |   |   | (0.36 | ) |
| Net (loss) income                                                        |   | $                                | (0.24     | ) |   | $ | 2.65 |   |   | $ | 7.57 |   |
|                                                                     |   |                             |      |   |   |   |   |   |   |   |   |   |
| Diluted earnings per common and common equivalent share:                 |   |                             |      |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations                                 |   | $                                | (0.14     | ) |   | $ | 2.93 |   |   | $ | 7.60 |   |
| Loss from discontinued operations, net                                   |   |                             | (0.10     | ) |   |   | (0.30 | ) |   |   | (0.35 | ) |
| Net (loss) income                                                        |   | $                                | (0.24     | ) |   | $ | 2.63 |   |   | $ | 7.25 |   |
|                                                                     |   |                             |      |   |   |   |   |   |   |   |   |   |
| Weighted average number of common and common equivalent                  |   |                             |      |   |   |   |   |   |   |   |   |   |
| shares outstanding:                                                      |   |                             |      |   |   |   |   |   |   |   |   |   |
| Basic                                                                    |   |                             | 19,280    |   |   |   | 14,614 |   |   |   | 14,444 |   |
| Diluted                                                                  |   |                             | 19,280    |   |   |   | 14,714 |   |   |   | 15,075 |   |

----

|                                                                                                                                                                |   | For the Years Ended December 31, |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                                                                                                |   | 2010                             |    |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                |   | Shares                           |    |   | Amount |   |   | Shares |   |   | Amount |   |   | Shares |   |   | Amount |   |
| Common stock:                                                                                                                                                       |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issued and outstanding at beginning of period                                                                                                                       |   |                             | 43,764  |   |   | $ | 438 |   |   |   | 43,545 |   |   | $ | 435 |   |   |   | 43,016 |   |   | $ | 430 |   |
| Issuance of common stock                                                                                                                                            |   |                             | 306     |   |   |   | 3 |   |   |   | 219 |   |   |   | 3 |   |   |   | 529 |   |   |   | 5 |   |
| Issuance of common stock in the equity offering                                                                                                                     | 30,763 |                             |    |   | 307 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Exchange of shares in the Separation (Note 1)                                                                                                                       |   |                             | (49,859 | ) |   |   | (498 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Common stock issued and outstanding at                                                                                                                              |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| end of period                                                                                                                                                       |   |                             | 24,974  |   |   |   | 250 |   |   |   | 43,764 |   |   |   | 438 |   |   |   | 43,545 |   |   |   | 435 |   |
|                                                                                                                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Additional paid-in capital:                                                                                                                                         |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period                                                                                                                                      |   |                             |    |   |   |   | 655,666 |   |   |   |   |   |   |   | 650,542 |   |   |   |   |   |   |   | 600,199 |   |
| Issuance of common stock in excess of par value                                                                                                                     |   |                             |    | 494 |   |   |   |   |   |   |   | 101 |   |   |   |   |   |   |   | 2,488 |   |
| Stock based compensation expense                                                                                                                                    |   |                             |    |   |   |   | 6,300 |   |   |   |   |   |   |   | 5,810 |   |   |   |   |   |   |   | 5,270 |   |
| Issuance of common stock in excess of par value   from the equity offering, net                                                                           |   |                             | 224,685 |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | - |   |
| Exchange of shares in the Separation (Note 1)                                                                                                                       |   |                             |    |   |   |   | 498 |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | - |   |
| Realization of pre-emergence tax benefits                                                                                                                           |   |                             |    |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 43,093 |   |
| Dividend to stockholders (Note 1)                                                                                                                                   |   |                             |    |   |   |   | (9,996 | ) |   |   |   |   |   |   | - |   |   |   |   |   |   |   | - |   |
| Distribution to Sabra (Note 1)                                                                                                                                      |   |                             |    |   |   |   | (155,749 | ) |   |   |   |   |   |   | - |   |   |   |   |   |   |   | - |   |
| Other                                                                                                                                                               |   |                             |    |   |   |   | (1,044 | ) |   |   |   |   |   |   | (787 | ) |   |   |   |   |   |   | (508 | ) |
| Additional paid-in capital at end of period                                                                                                                         |   |                             |    |   |   |   | 720,854 |   |   |   |   |   |   |   | 655,666 |   |   |   |   |   |   |   | 650,542 |   |
|                                                                                                                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accumulated deficit:                                                                                                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period                                                                                                                                      |   |                             |    |   |   |   | (204,011 | ) |   |   |   |   |   |   | (242,682 | ) |   |   |   |   |   |   | (351,969 | ) |
| Net (loss) income                                                                                                                                                   |   |                             |    |   |   |   | (4,650 | ) |   |   |   |   |   |   | 38,671 |   |   |   |   |   |   |   | 109,287 |   |
| Accumulated deficit at end of period                                                                                                                                |   |                             |    |   |   |   | (208,661 | ) |   |   |   |   |   |   | (204,011 | ) |   |   |   |   |   |   | (242,682 | ) |
|                                                                                                                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accumulated other comprehensive loss:                                                                                                                               |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at beginning of period                                                                                                                                      |   |                             |    |   |   |   | (3,029 | ) |   |   |   |   |   |   | (4,586 | ) |   |   |   |   |   |   | (2,403 | ) |
| Other comprehensive income (loss) from cash   flow hedge, net of related tax expense (benefit)   of $2,105, $1,038, and ($3,058)           |   |                             |    | 3,029 |   |   |   |   |   |   |   | 1,557 |   |   |   |   |   |   |   | (2,183 | ) |
| Accumulated other comprehensive loss at                                                                                                                             |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| end of period                                                                                                                                                       |   |                             |    |   |   |   | - |   |   |   |   |   |   |   | (3,029 | ) |   |   |   |   |   |   | (4,586 | ) |
|                                                                                                                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total stockholders' equity                                                                                                                                          |   |                             |    |   |   | $ | 512,443 |   |   |   |   |   |   | $ | 449,064 |   |   |   |   |   |   | $ | 403,709 |   |
|                                                                                                                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive (loss) income:                                                                                                                                        |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                                                                                                                                                   |   |                             |    |   |   | $ | (4,650 | ) |   |   |   |   |   | $ | 38,671 |   |   |   |   |   |   | $ | 109,287 |   |
| Other comprehensive income (loss) from cash flow   hedge, net of related tax expense (benefit) of    $2,019, $1,038, and ($3,058), respectively |   |                             | 3,029   |   |   |   |   |   |   |   | 1,557 |   |   |   |   |   |   |   | (2,183 | ) |
| Comprehensive (loss) income                                                                                                                                         |   |                             |    |   |   | $ | (1,621 | ) |   |   |   |   |   | $ | 40,228 |   |   |   |   |   |   | $ | 107,104 |   |
|                                                                                                                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                 |   | For the Years Ended December 31, |     |
|----------------------------------------------------------------------|--------|----------------------------------|----------|
|                                                                 |   | 2010                             |     |   | 2009 |   |   | 2008 |   |
| Cash flows from operating activities:                                |   |                             |     |   |   |   |   |   |   |
| Net (loss) income                                                    |   | $                                | (4,650   | ) |   | $ | 38,671 |   |   | $ | 109,287 |   |
| Adjustments to reconcile net (loss) income to net cash provided by   |   |                             |     |   |   |   |   |   |   |   |   |   |
| operating activities, including discontinued operations:             |   |                             |     |   |   |   |   |   |   |   |   |   |
| Loss on extinguishment of debt                                       |   |                             | 14,126   |   |   |   | - |   |   |   | - |   |
| Depreciation and amortization                                        |   |                             | 48,023   |   |   |   | 45,465 |   |   |   | 40,614 |   |
| Amortization of favorable and unfavorable lease intangibles          |   |                             | (1,945   | ) |   |   | (1,824 | ) |   |   | (1,879 | ) |
| Provision for losses on accounts receivable                          |   |                             | 21,175   |   |   |   | 21,196 |   |   |   | 15,283 |   |
| Loss on sale of assets, including discontinued operations, net       |   |                             | 847      |   |   |   | 605 |   |   |   | 2,151 |   |
| Impairment charge for discontinued operation                         |   |                             | -        |   |   |   | - |   |   |   | 1,800 |   |
| Stock-based compensation expense                                     |   |                             | 6,300    |   |   |   | 5,810 |   |   |   | 5,270 |   |
| Deferred taxes                                                       |   |                             | (1,590   | ) |   |   | 27,003 |   |   |   | (51,128 | ) |
| Other                                                                |   |                             | -        |   |   |   | - |   |   |   | (10 | ) |
| Changes in operating assets and liabilities, net of acquisitions:    |   |                             |     |   |   |   |   |   |   |   |   |   |
| Accounts receivable                                                  |   |                             | (18,945  | ) |   |   | (33,547 | ) |   |   | (35,136 | ) |
| Restricted cash                                                      |   |                             | 3,176    |   |   |   | 10,628 |   |   |   | 3,215 |   |
| Prepaid expenses and other assets                                    |   |                             | 5,671    |   |   |   | 2,940 |   |   |   | (4,213 | ) |
| Accounts payable                                                     |   |                             | (1,842   | ) |   |   | (8,390 | ) |   |   | 4,032 |   |
| Accrued compensation and benefits                                    |   |                             | 2,519    |   |   |   | (2,989 | ) |   |   | (2,367 | ) |
| Accrued self-insurance obligations                                   |   |                             | 17,890   |   |   |   | 7,759 |   |   |   | 4,773 |   |
| Income taxes payable                                                 |   |                             | -        |   |   |   | - |   |   |   | (1,806 | ) |
| Other accrued liabilities                                            |   |                             | (9,919   | ) |   |   | (3,196 | ) |   |   | (8,719 | ) |
| Other long-term liabilities                                          |   |                             | (928     | ) |   |   | (1,223 | ) |   |   | 7,020 |   |
| Net cash provided by operating activities                            |   |                             | 79,908   |   |   |   | 108,908 |   |   |   | 88,187 |   |
|                                                                 |   |                             |     |   |   |   |   |   |   |   |   |   |
| Cash flows from investing activities:                                |   |                             |     |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                                 |   |                             | (53,528  | ) |   |   | (54,312 | ) |   |   | (42,543 | ) |
| Purchase of leased real estate                                       |   |                             | -        |   |   |   | (3,275 | ) |   |   | (8,956 | ) |
| Proceeds from sale of assets held for sale                           |   |                             | -        |   |   |   | 2,174 |   |   |   | 18,354 |   |
| Acquisitions, net of cash acquired                                   |   |                             | (13,894  | ) |   |   | (14,936 | ) |   |   | (11,734 | ) |
| Insurance proceeds received                                          |   |                             | -        |   |   |   | - |   |   |   | 628 |   |
| Net cash used for investing activities                               |   |                             | (67,422  | ) |   |   | (70,349 | ) |   |   | (44,251 | ) |
|                                                                 |   |                             |     |   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:                                |   |                             |     |   |   |   |   |   |   |   |   |   |
| Borrowings of long-term debt                                         |   |                             | 435,500  |   |   |   | 20,822 |   |   |   | 20,290 |   |
| Principal repayments of long-term debt and capital lease obligations |   |                             | (590,939 | ) |   |   | (46,292 | ) |   |   | (29,627 | ) |
| Payment to non-controlling interest                                  |   |                             | (2,025   | ) |   |   | (311 | ) |   |   | (418 | ) |
| Distribution to non-controlling interest                             |   |                             | (105     | ) |   |   | (549 | ) |   |   | (353 | ) |
| Distribution to Sabra Health Care REIT, Inc.                         |   |                             | (66,862  | ) |   |   | - |   |   |   | - |   |
|     Dividend to stockholders                          |   |                             | (9,996   | ) |   |   | - |   |   |   | - |   |
| Proceeds from issuance of common stock                               |   |                             | 225,393  |   |   |   | 101 |   |   |   | 2,493 |   |
| Deferred financing costs                                             |   |                             | (26,772  | ) |   |   | - |   |   |   | - |   |
| Net cash (used for) provided by financing activities                 |   |                             | (35,806  | ) |   |   | (26,229 | ) |   |   | (7,615 | ) |
|                                                                 |   |                             |     |   |   |   |   |   |   |   |   |   |
| Net (decrease) increase in cash and cash equivalents                 |   |                             | (23,320  | ) |   |   | 12,330 |   |   |   | 36,321 |   |
| Cash and cash equivalents at beginning of period                     |   |                             | 104,483  |   |   |   | 92,153 |   |   |   | 55,832 |   |
| Cash and cash equivalents at end of period                           |   | $                                | 81,163   |   |   | $ | 104,483 |   |   | $ | 92,153 |   |
| Supplemental disclosure of cash flow information:                    |   |                             |     |   |   |   |   |   |   |   |   |   |
| Interest payments                                                    |   | $                                | 47,160   |   |   | $ | 48,781 |   |   | $ | 52,208 |   |
| Capitalized interest                                                 |   | $                                | 614      |   |   | $ | 523 |   |   | $ | 447 |   |
| Income taxes paid, net                                               |   | $                                | 103      |   |   | $ | 3,484 |   |   | $ | 2,231 |   |

----

----

----

| Cash                                                        |   | $      | 66,862   |   |
|-------------------------------------------------------------|--------|--------|----------|--------|
| Restricted cash                                             |   |   | 5,527    |   |
| Property and equipment, net of accumulated depreciation and |
| amortization of $91,878                                     |   |   | 484,801  |   |
| Intangible and other assets, net                            |   |   | 16,116   |   |
| Long-term debt and mortgage notes payable                   |   |   | (386,678 | )      |
| Accrued interest on mortgage notes payable                  |   |   | (1,425   | )      |
| Other accrued liabilities                                   |   |   | (2,326   | )      |
| Deferred tax liabilities                                    |   |   | (21,821  | )      |
| Due to Sun Healthcare Group, Inc.                           |   |   | (5,307   | )      |
| Net distribution                                            |   | $      | 155,749  |   |

----

----

----

----

----

----

|                                                                   |   | 2010   |    |   | 2009   |   |
|------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Revolving loans                                                        |   | $      | -       |   |   | $      | - |   |
| Mortgage notes payable due at various dates through 2042, interest at  |   |   |    |   |   |   |   |   |
| rates from 6.7% to 8.5%, collateralized by the carrying values of |   |   |    |   |   |   |   |   |
| various centers totaling approximately $6.7 million                    |   |   | 7,979   |   |   |   | 170,608 |   |
| Term loans                                                             |   |   | 147,492 |   |   |   | 329,107 |   |
| Senior subordinated notes                                              |   |   | -       |   |   |   | 200,000 |   |
| Capital leases                                                         |   |   | 509     |   |   |   | 833 |   |
| Total long-term obligations                                            |   |   | 155,980 |   |   |   | 700,548 |   |
| Less amounts due within one year                                       |   |   | (11,050 | )      |   |   | (46,416 | ) |
| Long-term obligations, net of current portion                          |   | $      | 144,930 |   |   | $      | 654,132 |   |

----

| 2011       |   | $      | 11,050  |   |
|------------|--------|--------|---------|--------|
| 2012       |   |   | 11,002  |   |
| 2013       |   |   | 10,949  |   |
| 2014       |   |   | 10,517  |   |
| 2015       |   |   | 10,065  |   |
| Thereafter |   |   | 102,397 |   |
|       |   | $      | 155,980 |   |

|                      |   | Liability Derivatives |
|---------------------------|--------|-----------------------|
|                      |   | 2010                  |   | 2009 |
|                      |   | Balance Sheet         |   |   |   |   | Balance Sheet |   |   |   |   |
|                      |   | Location              |   |   | Fair Value |   | Location |   |   | Fair Value |   |
| Derivatives designated as |   |                  |   |   |   |   |   |   |   |   |   |
| hedging instruments:      |   |                  |   |   |   |   |   |   |   |   |   |
| Interest rate swap        |   |                  |   |   |   |   | Other Long-Term |   |   |   |   |
| agreements                |   | N/A                   |   | $ | N/A |   | Liabilities |   | $ | 5,048 |   |

----

|                           |   |                    |   |   | Gain Reclassified from          |   |
|--------------------------------|--------|-------------------------|--------|--------|---------------------------------|--------|
|                           |   | Amount of Income/(Loss) |   |   | Accumulated Other Comprehensive |   |
|                           |   | In Other Comprehensive  |   |   | Loss to Net Income              |   |
|                           |   | Income/(Loss)           |   |   | (ineffective portion)           |   |
|                           |   | 2010                    |   |   | 2009                            |   |   | 2008 |   |   | 2010 |   |   | 2009 |   |   | 2008 |   |
| Derivatives designated as cash |   |                    |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| flow hedges:                   |   |                    |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate swap agreements  | $      | 3,029                   |   | $      | 1,557                           |   | $ | (2,183 | ) | $ | - |   | $ | - |   | $ | - |   |

|                                           |   | 2010   |     |   | 2009   |   |
|------------------------------------------------|--------|--------|----------|--------|--------|--------|
| Land                                           |   | $      | 2,936    |   |   | $      | 78,848 |   |
| Buildings and improvements                     |   |   | 21,235   |   |   |   | 464,136 |   |
| Equipment                                      |   |   | 116,468  |   |   |   | 128,939 |   |
| Leasehold improvements                         |   |   | 93,680   |   |   |   | 83,751 |   |
| Construction in process(1)                     |   |   | 8,438    |   |   |   | 20,862 |   |
| Total                                          |   |   | 242,757  |   |   |   | 776,536 |   |
| Less accumulated depreciation and amortization |   |   | (102,897 | )      |   |   | (153,854 | ) |
| Property and equipment, net                    |   | $      | 139,860  |   |   | $      | 622,682 |   |

| (1) | Capitalized interest associated with construction in process is $0.6 million and $0.4 million at December 31, 2010 and 2009, respectively. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------|

----

| Net working capital        |   | $      | 67     |   |
|----------------------------|--------|--------|--------|--------|
| Property and equipment     |   |   | 177    |   |
| Licensing intangible asset |   |   | 6,652  |   |
| Goodwill(1)                |   |   | 9,683  |   |
| Other long-term assets     |   |   | 47     |   |
| Total assets acquired      |   |   | 16,626 |   |
|                       |   |   |   |   |
| Liabilities assumed        |   |   | (2,732 | )      |
|                       |   |   |   |   |
| Net assets acquired        |   | $      | 13,894 |   |

| (1) | Tax-deductible goodwill has not yet been determined. |
|-----|------------------------------------------------------|

| Net working capital        |   | $      | 564    |   |
|----------------------------|--------|--------|--------|--------|
| Property and equipment     |   |   | 264    |   |
| Licensing intangible asset |   |   | 6,271  |   |
| Goodwill(1)                |   |   | 11,344 |   |
| Other long-term assets     |   |   | 24     |   |
| Total assets acquired      |   |   | 18,467 |   |
|                       |   |   |   |   |
| Liabilities assumed        |   |   | (2,322 | )      |
|                       |   |   |   |   |
| Net assets acquired        |   | $      | 16,145 |   |

| (1) | Tax-deductible goodwill is $3.6 million. |
|-----|------------------------------------------|

----

|                                 |   |      |    |   | Rehabilitation |   |   | Medical  |   |   |         |   |
|--------------------------------------|--------|-----------|---------|--------|----------------|--------|--------|----------|--------|--------|--------------|--------|
|                                 |   | Inpatient |    |   | Therapy        |   |   | Staffing |   |   |         |   |
|                                 |   | Services  |    |   | Services       |   |   | Services |   |   | Consolidated |   |
|                                 |   |      |    |   |           |   |   |     |   |   |         |   |
| Balance as of January 1, 2009        |   | $         | 322,200 |   |           | $      | 75     |     |   | $      | 4,533        |   |   | $ | 326,808 |   |
|                                 |   |      |    |   |           |   |   |     |   |   |         |   |   |   |   |   |
| Goodwill acquired                    |   |      | 11,276  |   |           |   | -      |     |   |   | -            |   |   |   | 11,276 |   |
| Purchase price adjustments for prior |   |      |    |   |           |   |   |     |   |   |         |   |   |   |   |   |
| year acquisition                     |   |      | 212     |   |           |   | -      |     |   |   | -            |   |   |   | 212 |   |
|                                 |   |      |    |   |           |   |   |     |   |   |         |   |   |   |   |   |
| Balance as of December 31, 2009      |   | $         | 333,688 |   |           | $      | 75     |     |   | $      | 4,533        |   |   | $ | 338,296 |   |
|                                 |   |      |    |   |           |   |   |     |   |   |         |   |   |   |   |   |
| Goodwill acquired                    |   |      | 9,683   |   |           |   | -      |     |   |   | -            |   |   |   | 9,683 |   |
| Purchase price adjustments for prior |   |      |    |   |           |   |   |     |   |   |         |   |   |   |   |   |
| year acquisition                     |   |      | 68      |   |           |   | -      |     |   |   | -            |   |   |   | 68 |   |
|                                 |   |      |    |   |           |   |   |     |   |   |         |   |   |   |   |   |
| Balance as of December 31, 2010      |   | $         | 343,439 |   |           | $      | 75     |     |   | $      | 4,533        |   |   | $ | 348,047 |   |

|                               |   | Gross    |   |   |         |   |   |   |   |
|------------------------------------|--------|----------|--------|--------|--------------|--------|--------|--------|--------|
|                               |   | Carrying |   |   | Accumulated  |   |   | Net    |   |
|                               |   | Amount   |   |   | Amortization |   |   | Total  |   |
| Finite-lived Intangibles:          |   |     |   |   |         |   |   |   |   |
| Favorable lease intangibles:       |   |     |   |   |         |   |   |   |   |
| 2010                               |   | $        | 10,100 |   |         | $      | 3,831  |   |   | $ | 6,269 |   |
| 2009                               |   |     | 10,311 |   |         |   | 3,140  |   |   |   | 7,171 |   |
| Management and customer contracts: |   |     |   |   |         |   |   |   |   |   |   |   |
| 2010                               |   | $        | 3,334  |   |         | $      | 2,500  |   |   | $ | 834 |   |
| 2009                               |   |     | 3,334  |   |         |   | 2,024  |   |   |   | 1,310 |   |
| Tradenames:                        |   |     |   |   |         |   |   |   |   |   |   |   |
| 2010                               |   | $        | 13,109 |   |         | $      | 6,175  |   |   | $ | 6,934 |   |
| 2009                               |   |     | 13,121 |   |         |   | 4,535  |   |   |   | 8,586 |   |
| Other intangible assets:           |   |     |   |   |         |   |   |   |   |   |   |   |
| 2010                               |   | $        | -      |   |         | $      | -      |   |   | $ | - |   |
| 2009                               |   |     | 189    |   |         |   | 61     |   |   |   | 189 |   |
|                               |   |     |   |   |         |   |   |   |   |   |   |   |
| Indefinite-lived Intangibles:      |   |     |   |   |         |   |   |   |   |   |   |   |
| Certificates of need/licenses:     |   |     |   |   |         |   |   |   |   |   |   |   |
| 2010                               |   | $        | 27,930 |   |         | $      | -      |   |   | $ | 27,930 |   |
| 2009                               |   |     | 21,433 |   |         |   | -      |   |   |   | 21,433 |   |
|                               |   |     |   |   |         |   |   |   |   |   |   |   |

----

| Total Intangible Assets:       |   |   |   |   |   |   |   |   |   |   |   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| 2010                           |   | $      | 54,473 |   |   | $      | 12,506 |   |   | $      | 41,967 |   |
| 2009                           |   |   | 48,388 |   |   |   | 9,760  |   |   |   | 38,628 |   |
|                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Unfavorable Lease Obligations: |   |   |   |   |   |   |   |   |   |   |   |   |
| 2010                           |   | $      | 29,113 |   |   | $      | 19,298 |   |   | $      | 9,815  |   |
| 2009                           |   |   | 29,113 |   |   |   | 16,450 |   |   |   | 12,663 |   |

|                                 |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|--------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                 |   |   |   |   |   |   |   |   |   |
| Amortization expense                 |   | $      | 7,558  | )      |   | $      | 7,359  |   |   | $ | 7,410 |   |
| Amortization of unfavorable          |   |   |   |   |   |   |   |   |   |   |   |   |
| and favorable lease intangibles, net |   |   |   |   |   |   |   |   |   |   |   |   |
| included in rent expense             |   |   | (1,945 | )      |   |   | (1,824 | )      |   |   | (1,878 | ) |
|                                 |   | $      | 5,613  |   |   | $      | 5,535  |   |   | $ | 5,532 |   |

|   |   | Expense |   |   | Credit |   |   | Net    |   |
|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
|   |   |    |   |   |   |   |   |   |   |
| 2011   |   | $       | 2,838  |   |   | $      | (2,705 | )      |   | $ | 133 |   |
| 2012   |   |    | 2,718  |   |   |   | (2,436 | )      |   |   | 282 |   |
| 2013   |   |    | 2,346  |   |   |   | (2,115 | )      |   |   | 231 |   |
| 2014   |   |    | 2,201  |   |   |   | (904   | )      |   |   | 1,297 |   |
| 2015   |   |    | 2,195  |   |   |   | (898   | )      |   |   | 1,297 |   |

----

----

----

|                                                      |   | 2010      |   |
|-----------------------------------------------------------|--------|-----------|--------|
|                                                      |   | Inpatient |   |   |   |   |   |   |   |
|                                                      |   | Services  |   |   | Other |   |   | Total |   |
|                                                      |   |      |   |   |   |   |   |   |   |
| Net operating revenues                                    |   | $         | 855    |   |   | $ | - |   |   | $ | 855 |   |
|                                                      |   |      |   |   |   |   |   |   |   |   |   |   |
| Loss from discontinued operations, net (1)                |   | $         | (1,861 | ) |   | $ | (73 | ) |   | $ | (1,934 | ) |
| Loss on disposal of discontinued operations, net (2) |   |      | -      |   |   |   | - |   |   |   | - |   |
| Loss from discontinued operations, net                    |   | $         | (1,861 | ) |   | $ | (73 | ) |   | $ | (1,934 | ) |

|                                                      |   | 2009      |   |
|-----------------------------------------------------------|--------|-----------|--------|
|                                                      |   | Inpatient |   |   |   |   |   |   |   |
|                                                      |   | Services  |   |   | Other |   |   | Total |   |
|                                                      |   |      |   |   |   |   |   |   |   |
| Net operating revenues                                    |   | $         | 1,544  |   |   | $ | - |   |   | $ | 1,544 |   |
|                                                      |   |      |   |   |   |   |   |   |   |   |   |   |
| Loss from discontinued operations, net (1)                |   | $         | (4,043 | ) |   | $ | (33 | ) |   | $ | (4,076 | ) |
| Loss on disposal of discontinued operations, net (2) |   |      | (317   | ) |   |   | (16 | ) |   |   | (333 | ) |
| Loss from discontinued operations, net                    |   | $         | (4,360 | ) |   | $ | (49 | ) |   | $ | (4,409 | ) |

|                                                      |   | 2008      |   |
|-----------------------------------------------------------|--------|-----------|--------|
|                                                      |   | Inpatient |   |   |   |   |   |   |   |
|                                                      |   | Services  |   |   | Other |   |   | Total |   |
|                                                      |   |      |   |   |   |   |   |   |   |
| Net operating revenues                                    |   | $         | 43,024 |   |   | $ | 17,888 |   |   | $ | 60,912 |   |
|                                                      |   |      |   |   |   |   |   |   |   |   |   |   |
| Loss from discontinued operations, net (1)                |   | $         | (2,008 | ) |   | $ | (213 | ) |   | $ | (2,221 | ) |
| Loss on disposal of discontinued operations, net (2) |   |      | (2,246 | ) |   |   | (755 | ) |   |   | (3,001 | ) |
| Loss from discontinued operations, net                    |   | $         | (4,254 | ) |   | $ | (968 | ) |   | $ | (5,222 | ) |

----

| 2011                         |   | $      | 147,256   |   |
|------------------------------|--------|--------|-----------|--------|
| 2012                         |   |   | 143,121   |   |
| 2013                         |   |   | 139,600   |   |
| 2014                         |   |   | 110,483   |   |
| 2015                         |   |   | 108,637   |   |
| Thereafter                   |   |   | 550,548   |   |
| Total minimum lease payments |   | $      | 1,199,645 |   |

----

----

|                                                    |   | ProfessionalLiability |    |   | Workers’Compensation |   |    | Total  |   |
|---------------------------------------------------------|--------|-----------------------|---------|--------|----------------------------|--------|---------|--------|--------|
|                                                    |   |                  |    |   |                       |   |    |   |   |
| Balance as of January 1, 2008                           |   | $                     | 86,291  |   |                       | $      | 61,439  |   |   | $ | 147,730 |   |
|                                                    |   |                  |    |   |                       |   |    |   |   |   |   |   |
| Current year provision, continuing operations           |   |                  | 29,454  |   |                       |   | 29,335  |   |   |   | 58,789 |   |
| Current year provision, discontinued operations         |   |                  | 790     |   |                       |   | 852     |   |   |   | 1,642 |   |
| Prior year reserve adjustments, continuing operations   |   |                  | (1,700  | )      |                       |   | 2,600   |   |   |   | 900 |   |
| Prior year reserve adjustments, discontinued operations |   |                  | (20     | )      |                       |   | 400     |   |   |   | 380 |   |
| Claims paid, continuing operations                      |   |                  | (20,343 | )      |                       |   | (18,499 | )      |   |   | (38,842 | ) |
| Claims paid, discontinued operations                    |   |                  | (3,755  | )      |                       |   | (3,674  | )      |   |   | (7,429 | ) |
| Amounts paid for administrative services and other      |   |                  | (3,435  | )      |                       |   | (5,865  | )      |   |   | (9,300 | ) |
|                                                    |   |                  |    |   |                       |   |    |   |   |   |   |   |
| Balance as of December 31, 2008                         |   | $                     | 87,282  |   |                       | $      | 66,588  |   |   | $ | 153,870 |   |
|                                                    |   |                  |    |   |                       |   |    |   |   |   |   |   |
| Current year provision, continuing operations           |   |                  | 27,152  |   |                       |   | 28,368  |   |   |   | 55,520 |   |
| Current year provision, discontinued operations         |   |                  | 1,512   |   |                       |   | 644     |   |   |   | 2,156 |   |
| Prior year reserve adjustments, continuing operations   |   |                  | 6,500   |   |                       |   | 1,720   |   |   |   | 8,220 |   |
| Prior year reserve adjustments, discontinued operations |   |                  | 890     |   |                       |   | 230     |   |   |   | 1,120 |   |
| Claims paid, continuing operations                      |   |                  | (20,394 | )      |                       |   | (20,165 | )      |   |   | (40,559 | ) |
| Claims paid, discontinued operations                    |   |                  | (3,699  | )      |                       |   | (2,530  | )      |   |   | (6,229 | ) |
| Amounts paid for administrative services and other      |   |                  | (4,313  | )      |                       |   | (7,349  | )      |   |   | (11,662 | ) |
|                                                    |   |                  |    |   |                       |   |    |   |   |   |   |   |
| Balance as of December 31, 2009                         |   | $                     | 94,930  |   |                       | $      | 67,506  |   |   | $ | 162,436 |   |
|                                                    |   |                  |    |   |                       |   |    |   |   |   |   |   |
| Current year provision, continuing operations           |   |                  | 29,620  |   |                       |   | 28,086  |   |   |   | 57,706 |   |
| Current year provision, discontinued operations         |   |                  | 10      |   |                       |   | 21      |   |   |   | 31 |   |
| Prior year reserve adjustments, continuing operations   |   |                  | 13,100  |   |                       |   | -       |   |   |   | 13,100 |   |
| Claims paid, continuing operations                      |   |                  | (19,636 | )      |                       |   | (18,948 | )      |   |   | (38,584 | ) |
| Claims paid, discontinued operations                    |   |                  | (3,422  | )      |                       |   | (2,059  | )      |   |   | (5,481 | ) |
| Amounts paid for administrative services and other      |   |                  | (2,731  | )      |                       |   | (6,121  | )      |   |   | (8,852 | ) |
|                                                    |   |                  |    |   |                       |   |    |   |   |   |   |   |
| Balance as of December 31, 2010                         |   | $                     | 111,871 |   |                       | $      | 68,485  |   |   | $ | 180,356 |   |

----

|                |   | 2010         | |      |   | 2009         |
|---------------------|--------|--------------|--------|--------|--------------|
|                |   | Professional |   |   | Workers'     |   |   |   | | |   | Professional |   |   | Workers' |   |   |   |
|                |   | Liability    |   |   | Compensation |   |   | Total | | |   | Liability |   |   | Compensation |   |   | Total |
| Assets (1):         |   |         |   |   |         |   |   |   | | |   |   |   |   |   |   |   |   |
| Restricted cash     |   |         |   |   |         |   |   |   | | |   |   |   |   |   |   |   |   |
| Current             | $      | 3,659        |   | $      | 10,864       |   | $ | 14,523 | | | $ | 3,406 |   | $ | 12,013 |   | $ | 15,419 |
| Non-current         |   | -            |   |   | -            |   |   | - | | |   | - |   |   | - |   |   | - |
| Total               | $      | 3,659        |   | $      | 10,864       |   | $ | 14,523 | | | $ | 3,406 |   | $ | 12,013 |   | $ | 15,419 |
|                |   |         |   |   |         |   |   |   | | |   |   |   |   |   |   |   |   |
| Liabilities (2)(3): |   |         |   |   |         |   |   |   | | |   |   |   |   |   |   |   |   |
| Self-insurance      |   |         |   |   |         |   |   |   | | |   |   |   |   |   |   |   |   |
| liabilities         |   |         |   |   |         |   |   |   | | |   |   |   |   |   |   |   |   |
| Current             | $      | 25,942       |   | $      | 21,009       |   | $ | 46,951 | | | $ | 20,369 |   | $ | 20,119 |   | $ | 40,488 |
| Non-current         |   | 85,929       |   |   | 47,476       |   |   | 133,405 | | |   | 74,561 |   |   | 47,387 |   |   | 121,948 |
| Total               | $      | 111,871      |   | $      | 68,485       |   | $ | 180,356 | | | $ | 94,930 |   | $ | 67,506 |   | $ | 162,436 |

| (1)    | Total restricted cash includes cash collateral deposits posted and other cash deposits held by third parties.  Total restricted cash excluded $1,156 and $11,932 at December 31, 2010 and 2009, respectively, held for bank collateral, various mortgages, bond payments and capital expenditures on HUD-insured buildings. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                  |
| (2)    | Total self-insurance liabilities excluded $5,142 and $5,173 at December 31, 2010 and 2009, respectively, related to our health insurance liabilities.                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                  |
| (3)    | Total self-insurance liabilities are collateralized, in addition to the restricted cash, by letters of credit of $59,066 for workers' compensation as of December 31, 2010 and $250 and $53,191 for general and professional liability insurance and workers' compensation, respectively, as of December 31, 2009.               |

----

|      |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|-----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Current:  |   |   |   |   |   |   |   |   |   |
| Federal   |   | $      | -      |   |   | $      | -      |   |   | $ | 941 |   |
| State     |   |   | 1,772  |   |   |   | 2,300  |   |   |   | 1,417 |   |
|      |   |   | 1,772  |   |   |   | 2,300  |   |   |   | 2,358 |   |
| Deferred: |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal   |   |   | 963    |   |   |   | 24,829 |   |   |   | (40,150 | ) |
| State     |   |   | 229    |   |   |   | 2,487  |   |   |   | (9,556 | ) |
|      |   |   | 1,192  |   |   |   | 27,316 |   |   |   | (49,706 | ) |
| Total     |   | $      | 2,964  |   |   | $      | 29,616 |   |   | $ | (47,348 | ) |

|                                        |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                        |   |   |   |   |   |   |   |   |   |
|                                        |   |   |   |   |   |   |   |   |   |
| Computed expected tax expense               |   | $      | 87     |   |   | $      | 25,234 |   |   | $ | 23,302 |   |
| Adjustments in income taxes resulting from: |   |   |   |   |   |   |   |   |   |   |   |   |
| Change in valuation allowance               |   |   | (111   | )      |   |   | -      |   |   |   | (70,465 | ) |
| State income tax expense, net of Federal    |   |   |   |   |   |   |   |   |   |   |   |   |
| income tax effect                           |   |   | 694    |   |   |   | 3,814  |   |   |   | 3,568 |   |
| Reduction in unrecognized tax benefits      |   |   | (264   | )      |   |   | (56    | )      |   |   | (2,202 | ) |
| Nondeductible transaction costs             |   |   | 3,771  |   |   |   | -      |   |   |   | - |   |
| Tax credits                                 |   |   | (1,612 | )      |   |   | (1,339 | )      |   |   | (1,114 | ) |
| Nondeductible compensation                  |   |   | 31     |   |   |   | 53     |   |   |   | 137 |   |
| Other nondeductible expenses                |   |   | 439    |   |   |   | 728    |   |   |   | 964 |   |
| Other                                       |   |   | (71    | )      |   |   | 1,182  |   |   |   | (1,538 | ) |
| Total                                       |   | $      | 2,964  |   |   | $      | 29,616 |   |   | $ | (47,348 | ) |

----

|                                       |   | 2010   |    |   | 2009   |   |
|--------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                       |   |   |    |   |   |   |
| Deferred tax assets:                       |   |   |    |   |   |   |
| Accounts and notes receivable              |   | $      | 26,945  |   |   | $      | 22,722 |   |
| Accrued liabilities                        |   |   | 89,865  |   |   |   | 82,018 |   |
| Intangible assets                          |   |   | 9,936   |   |   |   | 19,555 |   |
| Property and equipment                     |   |   | 5,400   |   |   |   | - |   |
| Write-down of assets held for sale         |   |   | 888     |   |   |   | 1,016 |   |
| Partnership investments                    |   |   | 2,165   |   |   |   | 4,274 |   |
| Minimum tax and other credit carryforwards |   |   | 6,457   |   |   |   | 8,794 |   |
| State net operating loss carryforwards     |   |   | 16,120  |   |   |   | 25,035 |   |
| Federal net operating loss carryforwards   |   |   | 56,690  |   |   |   | 79,122 |   |
| Other                                      |   |   | -       |   |   |   | 37 |   |
|                                       |   |   | 214,466 |   |   |   | 242,573 |   |
|                                       |   |   |    |   |   |   |   |   |
| Less valuation allowance                   |   |   | (18,126 | )      |   |   | (27,572 | ) |
| Total deferred tax assets                  |   |   | 196,340 |   |   |   | 215,001 |   |
|                                       |   |   |    |   |   |   |   |   |
| Deferred tax liabilities:                  |   |   |    |   |   |   |   |   |
| Property and equipment                     |   |   | -       |   |   |   | (37,587 | ) |
| Deferred tax assets, net                   |   | $      | 196,340 |   |   | $      | 177,414 |   |

----

----

|                                                         |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|--------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                         |   |   |   |   |   |   |   |   |   |
| Balance at the beginning of the period                       |   | $      | 26,316 |   |   | $      | 25,654 |   |   | $ | 5,417 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Additions for tax positions of prior years                   |   |   | 248    |   |   |   | 730    |   |   |   | - |   |
| Reductions for tax positions of prior years                  |   |   | -      |   |   |   | -      |   |   |   | (1,501 | ) |
| Additions based on tax positions related to the current year | -      |   |   |   | -      |   |   |   | 23,497 |   |
| Lapsing of statutes of limitations                           |   |   | (318   | )      |   |   | (68    | )      |   |   | (1,759 | ) |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at the end of the period                             |   | $      | 26,246 |   |   | $      | 26,316 |   |   | $ | 25,654 |   |

|                                          |   | 2010     |    |   | 2009       |   |
|-----------------------------------------------|--------|----------|---------|--------|------------|--------|
|                                          |   | Carrying |    |   |       |   |   | Carrying |   |   |   |   |
|                                          |   | Amount   |    |   | Fair Value |   |   | Amount |   |   | Fair Value |   |
|                                          |   |     |    |   |       |   |   |   |   |   |   |   |
| Cash and cash equivalents                     |   | $        | 81,163  |   |       | $      | 81,163 |   |   | $ | 104,483 |   |   | $ | 104,483 |   |
| Restricted cash                               |   | $        | 15,679  |   |       | $      | 15,679 |   |   | $ | 27,351 |   |   | $ | 27,351 |   |
| Long-term debt and capital lease obligations, |   |     |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| including current portion                     |   | $        | 155,980 |   |       | $      | 156,084 |   |   | $ | 700,548 |   |   | $ | 690,950 |   |
| Interest rate swap agreements                 |   | $        | -       |   |       | $      | - |   |   | $ | 5,048 |   |   | $ | 5,048 |   |

----

| Level 1: | Unadjusted quoted market prices in active markets for identical assets or liabilities.                                                                                                                                                                                   |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                                                                                                                     |
| Level 2: | Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. |
|     |                                                                                                                                                                                                                                                                     |
| Level 3: | Unobservable inputs for the asset or liability.                                                                                                                                                                                                                          |

|                                       |   | December 31, 2010 |
|--------------------------------------------|--------|-------------------|
|                                       |   |              |   | Unadjusted Quoted |   | Significant Other |
|                                       |   |              |   | Market Prices |   | Observable Inputs |
|                                       |   | Total             |   | (Level 1) |   | (Level 2) |
|                                       |   |              |   |   |   |   |   |   |
| Restricted cash – money market funds | $      | 1,465             | $ | 1,465 |   | $ | - |   |

|                                           |   | December 31, 2009 |
|------------------------------------------------|--------|-------------------|
|                                           |   |              |   | Unadjusted Quoted |   | Significant Other |
|                                           |   |              |   | Market Prices |   | Observable Inputs |
|                                           |   | Total             |   | (Level 1) |   | (Level 2) |
| Cash equivalents – money market          |   |              |   |   |   |   |
| funds/certificate of deposit                   | $      | 36,480            | $ | 31,429 |   | $ | 5,051 |   |
| Restricted cash – money market funds     | $      | 1,275             | $ | 1,275 |   | $ | - |   |
| Interest rate swap agreement – liability | $      | 5,048             | $ | - |   | $ | 5,048 |   |

----

|                                       |   | 2010   |   |   | 2009   |   |   | 2008                     |   |
|--------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------------------------|--------|
| Numerator:                                 |   |   |   |   |   |   |   |                     |   |
| Net (loss) income                     | $      | (4,650 | )      | $      | 38,671 |   | $      | 109,287                  |   |
| Denominator:                               |   |   |   |   |   |   |   |                     |   |
| Weighted average shares for basic net      |   |   |   |   |   |   |   |                     |   |
| income per common share                    |   | 19,280 |   |   | 14,614 |   |   |    14,444 |   |
| Add dilutive effect of assumed exercise of |   |   |   |   |   |   |   |                     |   |
| stock options and warrants and vesting     |   |   |   |   |   |   |   |                     |   |
| of restricted stock units using the        |   |   |   |   |   |   |   |                     |   |
| treasury stock method                      |   | -      |   |   | 100    |   |   | 524                      |   |
| Weighted average shares for diluted net    |   |   |   |   |   |   |   |                     |   |
| income per common share                    |   | 19,280 |   |   | 14,714 |   |   | 14,968                   |   |
|                                       |   |   |   |   |   |   |   |                     |   |
| Basic net income per common share          | $      | (0.24  | )      | $      | 2.65   |   | $      | 7.57                     |   |
| Diluted net income per common share        | $      | (0.24  | )      | $      | 2.63   |   | $      | 7.30                     |   |

----

|                             |   |           |   |   |           |   |   | Weighted-       |   |   |           |   |
|----------------------------------|--------|----------------|--------|--------|----------------|--------|--------|-----------------|--------|--------|----------------|--------|
|                             |   |           |   |   |           |   |   | Average         |   |   | Aggregate      |   |
|                             |   |           |   |   | Weighted-      |   |   | Remaining       |   |   | Intrinsic      |   |
| Options                          |   | Shares         |   |   | Average        |   |   | Contractual     |   |   | Value          |   |
| (Prior to the Separation)        |   | (in thousands) |   |   | Exercise Price |   |   | Term (in years) |   |   | (in thousands) |   |
|                             |   |           |   |   |           |   |   |            |   |   |           |   |
| Outstanding at January 1, 2010   |   | 2,310          |   | $      | 10.05          |   |   |            |   |   |           |   |
| Granted                          |   | 496            |   |   | 9.81           |   |   |            |   |   |           |   |
| Exercised                        |   | (185           | )      |   | 7.10           |   |   |            |   |   |           |   |
| Assumed by Sabra                 |   | (788           | )      |   | 10.08          |   |   |            |   |   |           |   |
| Forfeited                        |   | (53            | )      |   | 11.99          |   |   |            |   |   |           |   |
| Outstanding at November 15, 2010 |   | 1,780          |   | $      | 10.22          |   |   | 4               |   | $      | -              |   |
|                             |   |           |   |   |           |   |   |            |   |   |           |   |

|                                |   |           |   |   |           |   |   | Weighted-       |   |   |           |   |
|-------------------------------------|--------|----------------|--------|--------|----------------|--------|--------|-----------------|--------|--------|----------------|--------|
|                                |   |           |   |   |           |   |   | Average         |   |   | Aggregate      |   |
|                                |   |           |   |   | Weighted-      |   |   | Remaining       |   |   | Intrinsic      |   |
| Options                             |   | Shares         |   |   | Average        |   |   | Contractual     |   |   | Value          |   |
| (Subsequent to the Separation) |   | (in thousands) |   |   | Exercise Price |   |   | Term (in years) |   |   | (in thousands) |   |
|                                |   |           |   |   |           |   |   |            |   |   |           |   |
| Outstanding at November 16, 2010    |   | 1,478          |   | $      | 12.30          |   |   |            |   |   |           |   |
| Granted                             |   | 88             |   |   | 10.55          |   |   |            |   |   |           |   |
| Forfeited                           |   | (7             | )      |   | 10.89          |   |   |            |   |   |           |   |
| Outstanding at December 31, 2010    |   | 1,559          |   | $      | 10.52          |   |   | 4               |   | $      | 526            |   |
|                                |   |           |   |   |           |   |   |            |   |   |           |   |
| Exercisable at December 31, 2010    |   | 794            |   | $      | 11.99          |   |   | 4               |   | $      | 529            |   |

----

|                        | 2010          |   | 2009          |   | 2008          |
|-----------------------------|---------------|--------|---------------|--------|---------------|
| Expected volatility         | 49.6 %- 51.9% |   | 51.2% - 51.9% |   | 50.7% - 80.6% |
| Weighted-average volatility | 60.4%         |   | 51.6%         |   | 61.3%         |
| Expected term (in years)    | 4.75          |   | 4.75          |   | 4.75          |
| Risk-free rate              | 1.3% - 2.5%   |   | 1.8% - 2.6%   |   | 1.6% - 5.0%   |

|                           |   |           |   |   | Weighted-  |
|--------------------------------|--------|----------------|--------|--------|------------|
|                           |   |           |   |   | Average    |
| Nonvested Shares               |   | Shares         |   |   | Grant-Date |
| (Prior to the Separation)      |   | (in thousands) |   |   | Fair Value |
|                           |   |           |   |   |       |
| Nonvested at January 1, 2010   |   | 999            |   | $      | 10.93      |
| Granted                        |   | 623            |   |   | 9.75       |
| Vested                         |   | (457           | )      |   | 10.65      |
| Assumed by Sabra               |   | (130           | )      |   | 10.52      |
| Forfeited                      |   | (35            | )      |   | 11.61      |
| Nonvested at November 15, 2010 |   | 1,000          |   |   | 10.33      |
|                           |   |           |   |   |       |

|                           |   |           |   |   | Weighted-  |
|--------------------------------|--------|----------------|--------|--------|------------|
|                           |   |           |   |   | Average    |
| Nonvested Shares               |   | Shares         |   |   | Grant-Date |
| (Subsequent to the Separation) |   | (in thousands) |   |   | Fair Value |
|                           |   |           |   |   |       |
| Nonvested at November 16, 2010 |   | 831            |   | $      | 10.69      |
| Granted                        |   | 19             |   |   | 10.59      |
| Vested                         |   | (6             | )      |   | 8.82       |
| Forfeited                      |   | (7             | )      |   | 10.99      |
| Nonvested at December 31, 2010 |   | 837            |   |   | 10.72      |

----

----

----

----

| As of and for the                       |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|-----------------------------------------|--------|-----------|--------|--------|-------------------------------------|--------|--------|----------|--------|--------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
| Year Ended                              |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| December 31, 2010                       |   |      |   |   | Segment Information (in thousands): |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|                                    |   |      |   |   | Rehabilitation                      |   |   | Medical  |   |   |      |   |   |         |   |   |         |   |
|                                    |   | Inpatient |   |   | Therapy                             |   |   | Staffing |   |   |      |   |   | Intersegment |   |   |         |   |
|                                    |   | Services  |   |   | Services                            |   |   | Services |   |   | Corporate |   |   | Eliminations |   |   | Consolidated |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Revenues from external customers        | $      | 1,697,444 |   | $      | 119,612                             |   | $      | 89,765   |   | $      | 40        |   | $      | -            |   | $      | 1,906,861    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Intersegment revenues                   |   | -         |   |   | 86,476                              |   |   | 2,036    |   |   | -         |   |   | (88,512      | )      |   | -            |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Total revenues                          |   | 1,697,444 |   |   | 206,088                             |   |   | 91,801   |   |   | 40        |   |   | (88,512      | )      |   | 1,906,861    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Operating salaries and benefits         |   | 838,251   |   |   | 171,970                             |   |   | 67,638   |   |   | -         |   |   | -            |   |   | 1,077,859    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Self insurance for workers'             |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|   compensation and general and     |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|   professional liability insurance |   | 54,379    |   |   | 1,774                               |   |   | 1,309    |   |   | 13,344    |   |   | -            |   |   | 70,806       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Other operating costs                   |   | 457,693   |   |   | 8,008                               |   |   | 12,819   |   |   | -         |   |   | (88,512      | )      |   | 390,008      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| General and administrative expenses     |   | 41,195    |   |   | 8,160                               |   |   | 2,588    |   |   | 60,842    |   |   | -            |   |   | 112,785      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Provision for losses on                 |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|   accounts receivable              |   | 19,362    |   |   | 929                                 |   |   | 277      |   |   | -         |   |   | -            |   |   | 20,568       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Segment operating income (loss)         | $      | 286,564   |   | $      | 15,247                              |   | $      | 7,170    |   | $      | (74,146   | )      | $      | -            |   | $      | 234,835      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Center rent expense                     |   | 82,994    |   |   | 496                                 |   |   | 844      |   |   | -         |   |   | -            |   |   | 84,334       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Depreciation and amortization           |   | 43,333    |   |   | 678                                 |   |   | 732      |   |   | 3,265     |   |   | -            |   |   | 48,008       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Interest, net                           |   | 9,493     |   |   | -                                   |   |   | (1       | )      |   | 33,572    |   |   | -            |   |   | 43,064       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Net segment income (loss)               | $      | 150,744   |   | $      | 14,073                              |   | $      | 5,595    |   | $      | (110,983  | )      | $      | -            |   | $      | 59,429       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Identifiable segment assets             | $      | 708,227   |   | $      | 16,492                              |   | $      | 20,933   |   | $      | 313,536   |   | $      | 20,879       |   | $      | 1,080,067    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Goodwill                                | $      | 343,439   |   | $      | 75                                  |   | $      | 4,533    |   | $      | -         |   | $      | -            |   | $      | 348,047      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Segment capital expenditures            | $      | 49,003    |   | $      | 1,061                               |   | $      | 203      |   | $      | 3,261     |   | $      | -            |   | $      | 53,528       |   |

----

| As of and for the                       |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|-----------------------------------------|--------|-----------|--------|--------|-------------------------------------|--------|--------|----------|--------|--------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
| Year Ended                              |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| December 31, 2009                       |   |      |   |   | Segment Information (in thousands): |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|                                    |   |      |   |   | Rehabilitation                      |   |   | Medical  |   |   |      |   |   |         |   |   |         |   |
|                                    |   | Inpatient |   |   | Therapy                             |   |   | Staffing |   |   |      |   |   | Intersegment |   |   |         |   |
|                                    |   | Services  |   |   | Services                            |   |   | Services |   |   | Corporate |   |   | Eliminations |   |   | Consolidated |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Revenues from external customers        | $      | 1,674,752 |   | $      | 105,366                             |   | $      | 100,624  |   | $      | 34        |   | $      | -            |   | $      | 1,880,776    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Intersegment revenues                   |   | -         |   |   | 74,166                              |   |   | 1,930    |   |   | -         |   |   | (76,096      | )      |   | -            |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Total revenues                          |   | 1,674,752 |   |   | 179,532                             |   |   | 102,554  |   |   | 34        |   |   | (76,096      | )      |   | 1,880,776    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Operating salaries and benefits         |   | 833,658   |   |   | 150,271                             |   |   | 72,336   |   |   | -         |   |   | -            |   |   | 1,056,265    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Self insurance for workers'             |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|   compensation and general and     |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|   professional liability insurance |   | 59,830    |   |   | 2,161                               |   |   | 1,331    |   |   | 418       |   |   | -            |   |   | 63,740       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Other operating costs                   |   | 437,418   |   |   | 7,620                               |   |   | 15,713   |   |   | -         |   |   | (76,096      | )      |   | 384,655      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| General and administrative expenses     |   | 41,245    |   |   | 6,868                               |   |   | 2,811    |   |   | 62,068    |   |   | -            |   |   | 112,992      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Provision for losses on                 |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|   accounts receivable              |   | 20,637    |   |   | 482                                 |   |   | 55       |   |   | -         |   |   | -            |   |   | 21,174       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Segment operating income (loss)         | $      | 281,964   |   | $      | 12,130                              |   | $      | 10,308   |   | $      | (62,452   | )      | $      | -            |   | $      | 241,950      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Center rent expense                     |   | 71,728    |   |   | 480                                 |   |   | 920      |   |   | -         |   |   | -            |   |   | 73,128       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Depreciation and amortization           |   | 41,325    |   |   | 540                                 |   |   | 780      |   |   | 2,808     |   |   | -            |   |   | 45,453       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Interest, net                           |   | 12,226    |   |   | (2                                  | )      |   | (2       | )      |   | 37,105    |   |   | -            |   |   | 49,327       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Net segment income (loss)               | $      | 156,685   |   | $      | 11,112                              |   | $      | 8,610    |   | $      | (102,365  | )      | $      | -            |   | $      | 74,042       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Identifiable segment assets             | $      | 1,190,638 |   | $      | 16,011                              |   | $      | 25,143   |   | $      | 863,505   |   | $      | (528,456     | )      | $      | 1,566,841    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Goodwill                                | $      | 333,688   |   | $      | 75                                  |   | $      | 4,533    |   | $      | -         |   | $      | -            |   | $      | 338,296      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Segment capital expenditures            | $      | 50,418    |   | $      | 650                                 |   | $      | 74       |   | $      | 3,170     |   | $      | -            |   | $      | 54,312       |   |

----

| As of and for the                       |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|-----------------------------------------|--------|-----------|--------|--------|-------------------------------------|--------|--------|----------|--------|--------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
| Year Ended                              |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| December 31, 2008                       |   |      |   |   | Segment Information (in thousands): |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|                                    |   |      |   |   | Rehabilitation                      |   |   | Medical  |   |   |      |   |   |         |   |   |         |   |
|                                    |   | Inpatient |   |   | Therapy                             |   |   | Staffing |   |   |      |   |   | Intersegment |   |   |         |   |
|                                    |   | Services  |   |   | Services                            |   |   | Services |   |   | Corporate |   |   | Eliminations |   |   | Consolidated |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Revenues from external customers        | $      | 1,615,322 |   | $      | 89,619                              |   | $      | 117,788  |   | $      | 37        |   | $      | -            |   | $      | 1,822,766    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Intersegment revenues                   |   | -         |   |   | 60,856                              |   |   | 2,622    |   |   | -         |   |   | (63,478      | )      |   | -            |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Total revenues                          |   | 1,615,322 |   |   | 150,475                             |   |   | 120,410  |   |   | 37        |   |   | (63,478      | )      |   | 1,822,766    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Operating salaries and benefits         |   | 816,710   |   |   | 124,817                             |   |   | 86,345   |   |   | -         |   |   | -            |   |   | 1,027,872    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Self insurance for workers'             |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|   compensation and general and     |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|   professional liability insurance |   | 55,480    |   |   | 2,138                               |   |   | 1,514    |   |   | 557       |   |   | -            |   |   | 59,689       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Other operating costs                   |   | 411,784   |   |   | 7,113                               |   |   | 17,553   |   |   | -         |   |   | (63,478      | )      |   | 372,972      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| General and administrative expenses     |   | 41,382    |   |   | 6,806                               |   |   | 2,983    |   |   | 62,302    |   |   | -            |   |   | 113,473      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Provision for losses on                 |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
|   accounts receivable              |   | 13,256    |   |   | 213                                 |   |   | 563      |   |   | -         |   |   | -            |   |   | 14,032       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Segment operating income (loss)         | $      | 276,710   |   | $      | 9,388                               |   | $      | 11,452   |   | $      | (62,822   | )      | $      | -            |   | $      | 234,728      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Center rent expense                     |   | 72,223    |   |   | 394                                 |   |   | 976      |   |   | -         |   |   | -            |   |   | 73,593       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Depreciation and amortization           |   | 35,951    |   |   | 533                                 |   |   | 806      |   |   | 3,058     |   |   | -            |   |   | 40,348       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Interest, net                           |   | 13,670    |   |   | (1                                  | )      |   | (20      | )      |   | 40,954    |   |   | -            |   |   | 54,603       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Net segment income (loss)               | $      | 154,866   |   | $      | 8,462                               |   | $      | 9,690    |   | $      | (106,834  | )      | $      | -            |   | $      | 66,184       |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Identifiable segment assets             | $      | 1,145,106 |   | $      | 12,489                              |   | $      | 28,262   |   | $      | 880,428   |   | $      | (528,449     | )      | $      | 1,537,836    |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Goodwill                                | $      | 322,200   |   | $      | 75                                  |   | $      | 4,533    |   | $      | -         |   | $      | -            |   | $      | 326,808      |   |
|                                    |   |      |   |   |                                |   |   |     |   |   |      |   |   |         |   |   |         |   |
| Segment capital expenditures            | $      | 39,976    |   | $      | 286                                 |   | $      | 188      |   | $      | 1,962     |   | $      | -            |   | $      | 42,412       |   |

----

|                               |   | 2010    |   |   | 2009   |   |   | 2008   |   |
|------------------------------------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
|                               |   |    |   |   |   |   |   |   |   |
| Net segment income                 | $      | 59,429  |   | $      | 74,042 |   | $      | 66,184 |   |
| Transaction costs                  |   | (29,113 | )      |   | -      |   |   | -      |   |
| Restructuring costs, net           |   | -       |   |   | (1,304 | )      |   | -      |   |
| Loss on extinguishment of debt     |   | (29,221 | )      |   | -      |   |   | -      |   |
| (Loss) gain on sale of assets, net |   | (847    | )      |   | (42    | )      |   | 977    |   |
| Income before income taxes and     |   |    |   |   |   |   |   |   |   |
| discontinued operations            | $      | 248     |   | $      | 72,696 |   | $      | 67,161 |   |

----

----

----

|                                     |   | For the Year Ended |    |
|------------------------------------------|--------|--------------------|---------|
|                                     |   | December 31, 2010  |    |
|                                     |   | Fourth             |    |   | Third |   |   | Second |   |   | First |   |   |   |   |
|                                     |   | Quarter (a)        |    |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Total |   |
|                                     |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Total net revenues                       |   | $                  | 483,418 |   |   | $ | 475,997 |   |   | $ | 474,394 |   |   | $ | 473,052 |   |   | $ | 1,906,861 |   |
|                                     |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations |   | $                  | (31,930 | ) |   | $ | 7,998 |   |   | $ | 10,499 |   |   | $ | 10,717 |   |   | $ | (2,716 | ) |
| Loss from discontinued operations        |   | $                  | (446    | ) |   | $ | (442 | ) |   | $ | (526 | ) |   | $ | (520 | ) |   | $ | (1,934 | ) |
|                                     |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                        |   | $                  | (32,376 | ) |   | $ | 7,556 |   |   | $ | 9,973 |   |   | $ | 10,197 |   |   | $ | (4,650 | ) |
|                                     |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per common and            |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common equivalent share:                 |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations |   | $                  | (1.24   | ) |   | $ | 0.40 |   |   | $ | 0.71 |   |   | $ | 0.73 |   |   | $ | (0.14 | ) |
| Loss from discontinued operations        |   |               | (0.02   | ) |   |   | (0.02 | ) |   |   | (0.03 | ) |   |   | (0.04 | ) |   |   | (0.10 | ) |
| Net (loss) income                        |   | $                  | (1.26   | ) |   | $ | 0.38 |   |   | $ | 0.68 |   |   | $ | 0.69 |   |   | $ | (0.24 | ) |
|                                     |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings per common and          |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common equivalent share:                 |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations |   | $                  | (1.24   | ) |   | $ | 0.40 |   |   | $ | 0.71 |   |   | $ | 0.72 |   |   | $ | (0.14 | ) |
| Loss from discontinued operations        |   |               | (0.02   | ) |   |   | (0.02 | ) |   |   | (0.04 | ) |   |   | (0.03 | ) |   |   | (0.10 | ) |
| Net (loss) income                        |   | $                  | (1.26   | ) |   | $ | 0.38 |   |   | $ | 0.67 |   |   | $ | 0.69 |   |   | $ | (0.24 | ) |
|                                     |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of               |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common and common equivalent             |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| shares outstanding:                      |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                    |   |               | 25,791  |   |   |   | 19,839 |   |   |   | 14,744 |   |   |   | 14,677 |   |   |   | 19,280 |   |
| Diluted                                  |   |               | 25,791  |   |   |   | 19,857 |   |   |   | 14,843 |   |   |   | 14,802 |   |   |   | 19,280 |   |
|                                     |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|  (a) |  Includes certain pretax amounts related to year-end charges due to the Separation, consisting primarily of $29.1 million of transaction costs and $29.2 million of loss on extinguishment of debt. |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                         |   | For the Year Ended    |    |
|----------------------------------------------|--------|-----------------------|---------|
|                                         |   | December 31, 2009 (1) |    |
|                                         |   | Fourth                |    |   | Third |   |   | Second |   |   | First |   |   |   |   |
|                                         |   | Quarter               |    |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Total |   |
|                                         |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Total net revenues                           |   | $                     | 473,827 |   |   | $ | 470,644 |   |   | $ | 468,444 |   |   | $ | 467,861 |   |   | $ | 1,880,776 |   |
|                                         |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from continuing  operations |   | $                     | 9,810   |   |   | $ | 10,539 |   |   | $ | 10,974 |   |   | $ | 11,757 |   |   | $ | 43,080 |   |
| (Loss) income from discontinued operations   |   | $                     | (1,135  | ) |   | $ | (881 | ) |   | $ | (878 | ) |   | $ | (1,515 | ) |   | $ | (4,409 | ) |
|                                         |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                   |   | $                     | 8,675   |   |   | $ | 9,658 |   |   | $ | 10,096 |   |   | $ | 10,242 |   |   | $ | 38,671 |   |
|                                         |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per common and                |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common equivalent share:                     |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from continuing operations            |   | $                     | 0.67    |   |   | $ | 0.72 |   |   | $ | 0.75 |   |   | $ | 0.81 |   |   | $ | 2.95 |   |
| (Loss) income from discontinued operations   |   |                  | (0.08   | ) |   |   | (0.06 | ) |   |   | (0.06 | ) |   |   | (0.11 | ) |   |   | (0.30 | ) |
| Net income                                   |   | $                     | 0.59    |   |   | $ | 0.66 |   |   | $ | 0.69 |   |   | $ | 0.70 |   |   | $ | 2.65 |   |
|                                         |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings per common and              |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common equivalent share:                     |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from continuing operations            |   | $                     | 0.67    |   |   | $ | 0.72 |   |   | $ | 0.75 |   |   | $ | 0.80 |   |   | $ | 2.93 |   |
| (Loss) income from discontinued operations   |   |                  | (0.08   | ) |   |   | (0.06 | ) |   |   | (0.06 | ) |   |   | (0.11 | ) |   |   | (0.30 | ) |
| Net income                                   |   | $                     | 0.59    |   |   | $ | 0.66 |   |   | $ | 0.69 |   |   | $ | 0.69 |   |   | $ | 2.63 |   |
|                                         |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of                   |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common and common equivalent                 |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| shares outstanding:                          |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                        |   |                  | 14,648  |   |   |   | 14,641 |   |   |   | 14,617 |   |   |   | 14,548 |   |   |   | 14,614 |   |
| Diluted                                      |   |                  | 14,746  |   |   |   | 14,717 |   |   |   | 14,707 |   |   |   | 14,738 |   |   |   | 14,714 |   |

| (1) | We have reclassified all activity related to entities whose operations were divested or identified for disposal for the years ended December 31, 2010 and 2009 to discontinued operations.  Therefore, the quarterly financial data presented above including revenues, income (loss) before income taxes and discontinued operations and income (loss) on discontinued operations will not reflect the amounts reported previously in our Quarterly Reports on Form 10-Q filed with the SEC.  However, net income remains the same. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                    |   | ProfessionalLiability |    |   | Workers’Compensation |   |   | Total  |   |
|---------------------------------------------------------|--------|-----------------------|---------|--------|----------------------------|--------|--------|--------|--------|
|                                                    |   |                  |    |   |                       |   |   |   |   |
| Balance as of September 30, 2009                        |   | $                     | 90,007  |   |                       | $      | 65,554 |   |   | $ | 155,561 |   |
| Current year provision, continuing operations           |   |                  | 6,942   |   |                       |   | 7,260  |   |   |   | 14,202 |   |
| Current year provision, discontinued operations         |   |                  | 434     |   |                       |   | 161    |   |   |   | 595 |   |
| Prior year reserve adjustments, continuing operations   |   |                  | 2,200   |   |                       |   | 1,720  |   |   |   | 3,920 |   |
| Prior year reserve adjustments, discontinued operations |   |                  | 300     |   |                       |   | 230    |   |   |   | 530 |   |
| Claims paid, continuing operations                      |   |                  | (4,045  | )      |                       |   | (4,901 | )      |   |   | (8,946 | ) |
| Claims paid, discontinued operations                    |   |                  | (635    | )      |                       |   | (680   | )      |   |   | (1,315 | ) |
| Amounts paid for administrative services and other      |   |                  | (273    | )      |                       |   | (1,838 | )      |   |   | (2,111 | ) |
| Balance as of December 31, 2009                         |   | $                     | 94,930  |   |                       | $      | 67,506 |   |   | $ | 162,436 |   |
|                                                    |   |                  |    |   |                       |   |   |   |   |   |   |   |
|                                                    |   |                  |    |   |                       |   |   |   |   |   |   |   |
| Balance as of September 30, 2010                        |   | $                     | 98,953  |   |                       | $      | 68,794 |   |   | $ | 167,747 |   |
| Current year provision, continuing operations           |   |                  | 7,690   |   |                       |   | 6,314  |   |   |   | 14,004 |   |
| Current year provision, discontinued operations         |   |                  | 3       |   |                       |   | 5      |   |   |   | 8 |   |
| Prior year reserve adjustments, continuing operations   |   |                  | 13,100  |   |                       |   | -      |   |   |   | 13,100 |   |
| Claims paid, continuing operations                      |   |                  | (6,278  | )      |                       |   | (4,990 | )      |   |   | (11,268 | ) |
| Claims paid, discontinued operations                    |   |                  | (930    | )      |                       |   | (417   | )      |   |   | (1,347 | ) |
| Amounts paid for administrative services and other      |   |                  | (667    | )      |                       |   | (1,221 | )      |   |   | (1,888 | ) |
| Balance as of December 31, 2010                         |   | $                     | 111,871 |   |                       | $      | 68,485 |   |   | $ | 180,356 |   |

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|                                     |   | Column A   |   |   | Column B    |   |   | Column C          |   |   | Column D   |   |   | Column E   |   |
|------------------------------------------|--------|------------|--------|--------|-------------|--------|--------|-------------------|--------|--------|------------|--------|--------|------------|--------|
|                                     |   | Balance at |   |   | Charged to  |   |   | Additions         |   |   |       |   |   | Balance at |   |
|                                     |   | Beginning  |   |   | Costs and   |   |   | Charged to        |   |   | Deductions |   |   | End of     |   |
| Description                              |   | of Period  |   |   | Expenses(1) |   |   | Other Accounts(2) |   |   | Other(3)   |   |   | Period     |   |
| Year ended December 31, 2010        |   |       |   |   |        |   |   |              |   |   |       |   |   |       |   |
|   Allowance for doubtful accounts   | $      | 55,402     |   | $      | 21,175      |   | $      | -                 |   | $      | (9,970     | )      | $      | 66,607     |   |
|   Other receivables reserve (4)     | $      | 1,182      |   | $      | 168         |   | $      | -                 |   | $      | -          |   | $      | 1,350      |   |
|   Allowance for deferred tax assets | $      | 27,572     |   | $      | -           |   | $      | -                 |   | $      | (9,446     | )      | $      | 18,126     |   |
|                                     |   |       |   |   |        |   |   |              |   |   |       |   |   |       |   |
| Year ended December 31, 2009        |   |       |   |   |        |   |   |              |   |   |       |   |   |       |   |
|   Allowance for doubtful accounts   | $      | 44,830     |   | $      | 21,196      |   | $      | 214               |   | $      | (10,838    | )      | $      | 55,402     |   |
|   Other receivables reserve (4)     | $      | 1,077      |   | $      | 105         |   | $      | -                 |   | $      | -          |   | $      | 1,182      |   |
|   Allowance for deferred tax assets | $      | 34,321     |   | $      | -           |   | $      | -                 |   | $      | (6,749     | )      | $      | 27,572     |   |
|                                     |   |       |   |   |        |   |   |              |   |   |       |   |   |       |   |
| Year ended December 31, 2008        |   |       |   |   |        |   |   |              |   |   |       |   |   |       |   |
|   Allowance for doubtful accounts   | $      | 42,144     |   | $      | 15,283      |   | $      | 180               |   | $      | (12,777    | )      | $      | 44,830     |   |
|   Other receivables reserve (4)     | $      | 1,587      |   | $      | -           |   | $      | -                 |   | $      | (510       | )      | $      | 1,077      |   |
|   Allowance for deferred tax assets | $      | 132,905    |   | $      | -           |   | $      | 13,945            |   | $      | (112,529   | )      | $      | 34,321     |   |

| (1)    | Charges included in (adjustment) provision for losses on accounts receivable of $606, $(1), and $1,176 for the years ended December 31, 2010, 2009, and 2008, respectively, related to discontinued operations.                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                             |
| (2)    | Column C primarily represents increases that resulted from acquisition activity (see Note 5 – “Acquisitions”).                                                                                                                 |
|   |                                                                                                                                                                                                                                             |
| (3)    | Column D primarily represents write offs and recoveries of receivables that have been fully reserved or valuation allowance on deferred tax assets transferred to Sabra (see Note 9 – “Income Taxes”).                         |
|   |                                                                                                                                                                                                                                             |
| (4)    | The other receivables reserve is classified in prepaid and other assets on our consolidated balance sheets.  Other receivables, net of reserves, were $2,424, $4,943, and $5,599 as of December 31, 2010, 2009 and 2008, respectively. |

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