##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the quarterly period ended March 31, 2008.
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the transition period from  to .
 Commission file number: 001-33459
 Skilled Healthcare Group, Inc.
 
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    20-3934755
(IRS Employer
Identification No.)27442 Portola Parkway, Suite 200
Foothill Ranch, California
(Address of principal executive offices)
    
    92610
(Zip Code)
 (949) 282-5800
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### Table of Contents



TABLE OF ADDITIONAL REGISTRANTS
 (State or Other
    
    (Primary StandardJurisdiction of
    
    IndustrialIncorporation or
    
    Classification Code
    
    (I.R.S. Employer(Exact Names of Registrants as Specified in Their Charters)
    
    Organization)
    
    Number)
    
    Identification No.)Albuquerque Heights Healthcare and Rehabilitation Center,
LLC
    
    Delaware
    
    8051
    
    
    26-0675040Alexandria Care Center, LLC
    
    Delaware
    
    8051
    
    
    95-4395382Alta Care Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081141Anaheim Terrace Care Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081125Baldwin Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-1854609Bay Crest Care Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081158Belen Meadows Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    26-0675094Blue River Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-8386525Briarcliff Nursing and Rehabilitation Center GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080490Briarcliff Nursing and Rehabilitation Center, LP
    
    Delaware
    
    8051
    
    
    20-0081646Brier Oak on Sunset, LLC
    
    Delaware
    
    8051
    
    
    95-4212165Cameron Nursing and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-8571379Canyon Transitional Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    26-0675157Carehouse Healthcare Center, LLC
    
    Delaware
    
    8051
    
    
    20-0080962Carmel Hills Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-4214320Chestnut Property, LLC
    
    Delaware
    
    6500
    
    
    20-8386994Clairmont Beaumont GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080531Clairmont Beaumont, LP
    
    Delaware
    
    8051
    
    
    20-0081662Clairmont Longview GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080552Clairmont Longview, LP
    
    Delaware
    
    8051
    
    
    20-0081682Clovis Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    26-0675210Colonial New Braunfels Care Center, LP
    
    Delaware
    
    8051
    
    
    20-0081694Colonial New Braunfels GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080585Colonial Tyler Care Center, LP
    
    Delaware
    
    8051
    
    
    20-0081705Colonial Tyler GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080596Coronado Nursing Center GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080630Coronado Nursing Center, LP
    
    Delaware
    
    8051
    
    
    20-0081776Devonshire Care Center, LLC
    
    Delaware
    
    8051
    
    
    20-0080978East Sunrise Property, LLC
    
    Delaware
    
    6500
    
    
    20-8387041East Walnut Property, LLC
    
    Delaware
    
    6500
    
    
    20-4214556Elmcrest Care Center, LLC
    
    Delaware
    
    8051
    
    
    95-4274740Euclid Property, LLC
    
    Delaware
    
    6500
    
    
    20-8387105Eureka Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-0146285Flatonia Oak Manor GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080645Flatonia Oak Manor, LP
    
    Delaware
    
    8051
    
    
    20-0081788Fountain Care Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081005Fountain Senior Assisted Living, LLC
    
    Delaware
    
    8360
    
    
    20-0081024Fountain View Subacute and Nursing Center, LLC
    
    Delaware
    
    8051
    
    
    95-2506832Glen Hendren Property, LLC
    
    Delaware
    
    6500
    
    
    20-4214585Granada Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-0146353Guadalupe Valley Nursing Center GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080693Guadalupe Valley Nursing Center, LP
    
    Delaware
    
    8051
    
    
    20-0081801Hallettsville Rehabilitation and Nursing Center, LP
    
    Delaware
    
    8051
    
    
    20-0081807Hallettsville Rehabilitation GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080721Hallmark Investment Group, Inc.
    
    Delaware
    
    6700
    
    
    95-4644786Hallmark Rehabilitation GP, LLC
    
    Delaware
    
    8051
    
    
    20-0083989Hallmark Rehabilitation, LP
    
    Delaware
    
    8051
    
    
    20-0084046Hancock Park Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    95-3918421Hancock Park Senior Assisted Living, LLC
    
    Delaware
    
    8051
    
    
    95-3918420Hemet Senior Assisted Living, LLC
    
    Delaware
    
    8051
    
    
    20-0081183Highland Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-1854718Holmesdale Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-4214404Holmesdale Property, LLC
    
    Delaware
    
    6500
    
    
    20-4214625




---



##### Table of Contents



(State or Other
    
    (Primary StandardJurisdiction of
    
    IndustrialIncorporation or
    
    Classification Code
    
    (I.R.S. Employer(Exact Names of Registrants as Specified in Their Charters)
    
    Organization)
    
    Number)
    
    Identification No.)Hospice Care Investments, LLC
    
    Delaware
    
    6700
    
    
    20-0674503Hospice Care of the West, LLC
    
    Delaware
    
    8080
    
    
    20-0662232Hospice of the West, LP
    
    Delaware
    
    8080
    
    
    20-1138347Hospitality Nursing and Rehabilitation Center, LP
    
    Delaware
    
    8051
    
    
    20-0081818Hospitality Nursing GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080750Leasehold Resource Group, LLC
    
    Delaware
    
    6500
    
    
    20-0083961Liberty Terrace Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-4214454Live Oak Nursing Center GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080766Live Oak Nursing Center, LP
    
    Delaware
    
    8051
    
    
    20-0081828Louisburg Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-1854747Montebello Care Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081194Monument Rehabilitation and Nursing Center, LP
    
    Delaware
    
    8051
    
    
    20-0081831Monument Rehabilitation GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080781Oak Crest Nursing Center GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080801Oak Crest Nursing Center, LP
    
    Delaware
    
    8051
    
    
    20-0081841Oakland Manor GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080814Oakland Manor Nursing Center, LP
    
    Delaware
    
    8051
    
    
    20-0081854Pacific Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-0146398Preferred Design, LLC
    
    Delaware
    
    7300
    
    
    20-4645757Richmond Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-1854787Rio Hondo Subacute and Nursing Center, LLC
    
    Delaware
    
    8051
    
    
    95-4274737Rossville Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-1854816Royalwood Care Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081209Sandpiper Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    26-2146280Seaview Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-0146473Sharon Care Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081226Shawnee Gardens Healthcare and Rehabilitation Center,
LLC
    
    Delaware
    
    8051
    
    
    20-1854845SHG Project Dallas, LLC
    
    Delaware
    
    8051
    
    
    20-5855298SHG Resources, LP
    
    Delaware
    
    6500
    
    
    20-0084078Skies Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    26-0675263Skilled Healthcare, LLC
    
    Delaware
    
    7300
    
    
    20-0084014South Swope Property, LLC
    
    Delaware
    
    6500
    
    
    20-5855449Southwest Payroll Services, LLC
    
    Delaware
    
    7300
    
    
    41-2115227Southwood Care Center GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080824Southwood Care Center, LP
    
    Delaware
    
    8051
    
    
    20-0081861Spring Senior Assisted Living, LLC
    
    Delaware
    
    8360
    
    
    20-0081045St. Anthony Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    26-0675327St. Catherine Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-8386337St. Elizabeth Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-1609072St. John Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-8386810St. Luke Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-0366729St. Joseph Transitional Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-4974918St. Theresa Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    26-0675370Summit Care Corporation
    
    Delaware
    
    6700
    
    
    95-3656297Summit Care Pharmacy, Inc.
    
    Delaware
    
    6700
    
    
    95-3747839Sycamore Park Care Center, LLC
    
    Delaware
    
    8051
    
    
    95-2260970Texas Cityview Care Center GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080841Texas Cityview Care Center, LP
    
    Delaware
    
    8051
    
    
    20-0081871Texas Heritage Oaks Nursing and Rehabilitation Center GP,
LLC
    
    Delaware
    
    6700
    
    
    20-0080949Texas Heritage Oaks Nursing and Rehabilitation Center, LP
    
    Delaware
    
    8051
    
    
    20-0081888The Clairmont Tyler GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080856The Clairmont Tyler, LP
    
    Delaware
    
    8051
    
    
    20-0081909The Earlwood, LLC
    
    Delaware
    
    8051
    
    
    20-0081060The Heights of Summerlin, LLC
    
    Delaware
    
    8051
    
    
    20-1380043




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##### Table of Contents



(State or Other
    
    (Primary StandardJurisdiction of
    
    IndustrialIncorporation or
    
    Classification Code
    
    (I.R.S. Employer(Exact Names of Registrants as Specified in Their Charters)
    
    Organization)
    
    Number)
    
    Identification No.)The Rehabilitation Center of Albuquerque, LLC
    
    Delaware
    
    8051
    
    
    26-0675426The Rehabilitation Center of Independence, LLC
    
    Delaware
    
    8051
    
    
    20-5855354The Rehabilitation Center of Raymore, LLC
    
    Delaware
    
    8051
    
    
    20-8386866The Woodlands Healthcare Center GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080888The Woodlands Healthcare Center, LP
    
    Delaware
    
    8051
    
    
    20-0081923Town and Country Manor GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080866Town and Country Manor, LP
    
    Delaware
    
    8051
    
    
    20-0081914Valley Healthcare Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081076Villa Maria Healthcare Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081090Vintage Park at Atchison, LLC
    
    Delaware
    
    8360
    
    
    20-1854925Vintage Park at Baldwin City, LLC
    
    Delaware
    
    8360
    
    
    20-1854971Vintage Park at Gardner, LLC
    
    Delaware
    
    8360
    
    
    20-1855022Vintage Park at Lenexa, LLC
    
    Delaware
    
    8360
    
    
    20-1855099Vintage Park at Louisburg, LLC
    
    Delaware
    
    8360
    
    
    20-1855153Vintage Park at Osawatomie, LLC
    
    Delaware
    
    8360
    
    
    20-1855502Vintage Park at Ottawa, LLC
    
    Delaware
    
    8360
    
    
    20-1855554Vintage Park at Paola, LLC
    
    Delaware
    
    8360
    
    
    20-1855675Vintage Park at Stanley, LLC
    
    Delaware
    
    8360
    
    
    20-1855749Vintage Park at Waterfront, LLC
    
    Delaware
    
    8360
    
    
    26-2146548Wathena Healthcare and Rehabilitation Center, LLC
    
    Delaware
    
    8051
    
    
    20-1854880West Side Campus of Care GP, LLC
    
    Delaware
    
    6700
    
    
    20-0080879West Side Campus of Care, LP
    
    Delaware
    
    8051
    
    
    20-0081918Willow Creek Healthcare Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081112Woodland Care Center, LLC
    
    Delaware
    
    8051
    
    
    20-0081237




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##### 



Skilled Healthcare Group, Inc.
 Form 10-Q
For the Quarterly Period Ended March 31, 2008
 Index
 PageNumberPart I.
    
    Financial Information
    
    
    2Item 1.
    
    Financial Statements
    
    
    2Condensed Consolidated Balance Sheets  March 31, 2008 (unaudited) and December 31, 2007
    
    
    2Condensed Consolidated Statements of Operations  Three months ended March 31, 2008 (unaudited) and March 31, 2007 (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows  Three months ended March 31, 2008 (unaudited) and March 31, 2007 (unaudited)
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4.
    
    Controls and Procedures
    
    
    29Item 4T.
    
    Controls and Procedures
    
    
    29Part II.
    
    Other Information
    
    
    31Item 1.
    
    Legal Proceedings
    
    
    31Item 1A.
    
    Risk Factors
    
    
    31Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3.
    
    Defaults Upon Senior Securities
    
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    31Item 5.
    
    Other Information
    
    
    31Item 6.
    
    Exhibits
    
    
    31Signatures
    
    
    33Exhibit 31.1Exhibit 31.2Exhibit 32
  1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 Skilled Healthcare Group, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,992
    
    
    $
    5,012Accounts receivable, less allowance for doubtful
accounts of $10,468 and $9,717 at March 31, 2008 and
December 31, 2007, respectively
    
    
    126,208
    
    
    
    112,919Deferred income taxes
    
    
    13,088
    
    
    
    14,968Prepaid expenses
    
    
    5,012
    
    
    
    5,708Other current assets
    
    
    11,450
    
    
    
    11,697Total current assets
    
    
    159,750
    
    
    
    150,304Property and equipment, net
    
    
    299,322
    
    
    
    294,281Other assets:Notes receivable
    
    
    4,875
    
    
    
    5,102Deferred financing costs, net
    
    
    12,566
    
    
    
    11,869Goodwill
    
    
    450,040
    
    
    
    449,710Intangible assets, net
    
    
    32,838
    
    
    
    34,092Non-current income tax receivable
    
    
    2,288
    
    
    
    2,288Deferred income taxes
    
    
    1,258
    
    
    
    Other assets
    
    
    23,536
    
    
    
    22,461Total other assets
    
    
    527,401
    
    
    
    525,522Total assets
    
    $
    986,473
    
    
    $
    970,107LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    55,645
    
    
    $
    59,218Employee compensation and benefits
    
    
    27,835
    
    
    
    29,629Current portion of long-term debt and capital leases
    
    
    4,173
    
    
    
    6,335Total current liabilities
    
    
    87,653
    
    
    
    95,182Long-term liabilities:Insurance liability risks
    
    
    31,104
    
    
    
    24,248Deferred income tax
    
    
    
    
    
    
    2,297Other long-term liabilities
    
    
    24,496
    
    
    
    21,810Long-term debt and capital leases, less current portion
    
    
    461,406
    
    
    
    452,101Total liabilities
    
    
    604,659
    
    
    
    595,638Stockholders equity:Preferred stock, 25,000 shares authorized, $0.001 par
value per share, at March 31, 2008 and December 31, 2007,
respectively; no shares issued and outstanding at March
31, 2008 and December 31, 2007, respectively
    
    
    
    
    
    
    Class A common stock, 175,000 shares authorized, $0.001
par value per share, at March 31, 2008 and December 31,
2007, respectively; 19,432 and 19,261 issued and
outstanding at March 31, 2008 and December 31, 2007,
respectively
    
    
    19
    
    
    
    19Class B common stock, 30,000 shares authorized, $0.001
par value per share, at March 31, 2008 and December 31,
2007, respectively; 17,633 and 17,696 issued and
outstanding at March 31, 2008 and December 31, 2007,
respectively
    
    
    18
    
    
    
    18Additional paid-in-capital
    
    
    365,355
    
    
    
    365,051Retained earnings
    
    
    18,578
    
    
    
    10,134Accumulated other comprehensive loss
    
    
    (2,156
    )
    
    
    (753
    )Total stockholders equity
    
    
    381,814
    
    
    
    374,469Total liabilities and stockholders equity
    
    $
    986,473
    
    
    $
    970,107
  2




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##### Table of Contents



Skilled Healthcare Group, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 Three Months Ended March 31,2008
    
    
    2007Revenue
    
    $
    180,727
    
    
    $
    144,655Expenses:Cost of services (exclusive of rent cost
of revenue and depreciation and
amortization shown below) below)
    
    
    142,144
    
    
    
    113,949Rent cost of revenue
    
    
    4,465
    
    
    
    2,694General and administrative
    
    
    6,222
    
    
    
    4,761Depreciation and amortization
    
    
    5,160
    
    
    
    3,961157,991
    
    
    
    125,365Other income (expenses):Interest expense
    
    
    (9,653
    )
    
    
    (12,092
    )Interest income
    
    
    214
    
    
    
    327Other
    
    
    222
    
    
    
    Equity in earnings of joint venture
    
    
    391
    
    
    
    540Change in fair value of interest rate hedge
    
    
    
    
    
    
    (33
    )Total other income (expenses), net
    
    
    (8,826
    )
    
    
    (11,258
    )Income before provision for income taxes
    
    
    13,910
    
    
    
    8,032Provision for income taxes
    
    
    5,466
    
    
    
    3,378Net income
    
    
    8,444
    
    
    
    4,654Accretion on preferred stock
    
    
    
    
    
    
    (4,772
    )Net income (loss) attributable to common
stockholders
    
    $
    8,444
    
    
    $
    (118
    )Net income (loss) per share data:Net income (loss) per common share, basic
    
    $
    0.23
    
    
    $
    (0.01
    )Net income (loss) per common share, diluted
    
    $
    0.23
    
    
    $
    (0.01
    )Weighted-average common shares outstanding,
basic
    
    
    36,551
    
    
    
    11,959Weighted-average common shares outstanding,
diluted
    
    
    36,881
    
    
    
    11,959
  3




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##### Table of Contents



Skilled Healthcare Group, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Cash Flows from Operating ActivitiesNet income
    
    $
    8,444
    
    
    $
    4,654Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    5,160
    
    
    
    3,961Provision for doubtful accounts
    
    
    1,428
    
    
    
    1,026Non-cash stock-based compensation
    
    
    304
    
    
    
    17Amortization of deferred financing costs
    
    
    686
    
    
    
    722Deferred income taxes
    
    
    (784
    )
    
    
    (2,330
    )Change in fair value of interest rate hedge
    
    
    
    
    
    
    33Amortization of discount on senior subordinated notes
    
    
    27
    
    
    
    42Changes in operating assets and liabilities:Accounts receivable
    
    
    (14,717
    )
    
    
    (3,326
    )Other current and non-current assets
    
    
    (393
    )
    
    
    (834
    )Accounts payable and accrued liabilities
    
    
    1,998
    
    
    
    (12,584
    )Employee compensation and benefits
    
    
    (2,352
    )
    
    
    (771
    )Insurance liability risks
    
    
    1,843
    
    
    
    887Other long-term liabilities
    
    
    392
    
    
    
    11,156Net cash provided by operating activities
    
    
    2,036
    
    
    
    2,653Cash Flows from Investing ActivitiesPrincipal payments on (additions to) notes receivable, net
    
    
    488
    
    
    
    (1,566
    )Acquisition of healthcare facilities
    
    
    
    
    
    
    (4,623
    )Additions to property and equipment
    
    
    (8,933
    )
    
    
    (6,379
    )Changes in other assets
    
    
    (344
    )
    
    
    (30,203
    )Cash distributed related to the Onex Transaction
    
    
    
    
    
    
    (7,330
    )Net cash used in investing activities
    
    
    (8,789
    )
    
    
    (50,101
    )Cash Flows from Financing ActivitiesBorrowings under line of credit, net
    
    
    10,000
    
    
    
    46,500Repayments on long-term debt and capital leases
    
    
    (2,884
    )
    
    
    (743
    )Additions to deferred financing costs
    
    
    (1,383
    )
    
    
    (752
    )Net cash provided by financing activities
    
    
    5,733
    
    
    
    45,005Decrease in cash and cash equivalents
    
    
    (1,020
    )
    
    
    (2,443
    )Cash and cash equivalents at beginning of period
    
    
    5,012
    
    
    
    2,821Cash and cash equivalents at end of period
    
    $
    3,992
    
    
    $
    378
 Three Months EndedMarch 31,2008
    
    
    2007Supplemental cash flow informationCash paid for:Interest expense, net of capitalized interest
    
    $
    12,920
    
    
    $
    16,933Income taxes
    
    $
    215
    
    
    $
    3,330
  4




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##### Table of Contents



SKILLED HEALTHCARE GROUP, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. Description of Business
 Current Business
  Seasonality
  2. Summary of Significant Accounting Policies
 Other Information
   Estimates and Assumptions
  5




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##### Table of Contents



SKILLED HEALTHCARE GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Reclassifications
  Revenue and Accounts Receivable
  Goodwill and Intangible Assets
 Business Combinations Goodwill and Other Intangible Assets
 Recent Accounting Pronouncements
 Fair Value Measurements Effective Date of FASB Statement No. 157
 
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
 6




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##### Table of Contents



SKILLED HEALTHCARE GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
    
    Level 3  Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
  The Fair Value Option for
Financial Assets and Financial Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 3. Net Income (Loss) Per Share of Class A Common Stock and Class B Common Stock
 Earnings Per Share
  7




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##### Table of Contents



SKILLED HEALTHCARE GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Three Months Ended March 31, 2008Class A
    
    
    Class B
    
    
    TotalNet income per share, basicNumerator:Allocation of income
attributable to common
stockholders
    
    $
    4,436
    
    
    $
    4,008
    
    
    $
    8,444Denominator:Weighted-average common
shares outstanding
    
    
    19,200
    
    
    
    17,351
    
    
    
    36,551Net income per common share,
basic
    
    $
    0.23
    
    
    $
    0.23
    
    
    $
    0.23Net income per share, dilutedNumerator:Allocation of income
attributable to common
stockholders
    
    $
    4,401
    
    
    $
    4,043
    
    
    $
    8,444Denominator:Weighted-average common
shares outstanding
    
    
    19,200
    
    
    
    17,351
    
    
    
    36,551Plus: incremental shares
related to dilutive
effect of stock options
and restricted stock, if
applicable
    
    
    20
    
    
    
    310
    
    
    
    330Adjusted weighted-average
common shares outstanding
    
    
    19,220
    
    
    
    17,661
    
    
    
    36,881Net income per common share,
Diluted
    
    $
    0.23
    
    
    $
    0.23
    
    
    $
    0.23
 4. Business Segments
    8




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##### Table of Contents



SKILLED HEALTHCARE GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   Long-term
    
    
    AncillaryCare Services
    
    
    Services
    
    
    Other
    
    
    Elimination
    
    
    TotalThree months ended March 31, 2008Revenue from external customers
    
    $
    158,817
    
    
    $
    21,910
    
    
    $
    
    
    
    $
    
    
    
    $
    180,727Intersegment revenue
    
    
    808
    
    
    
    16,608
    
    
    
    
    
    
    
    (17,416
    )
    
    
    Total revenue
    
    $
    159,625
    
    
    $
    38,518
    
    
    $
    
    
    
    
    (17,416
    )
    
    $
    180,727Segment capital expenditures
    
    $
    7,246
    
    
    $
    184
    
    
    $
    1,503
    
    
    $
    
    
    
    $
    8,933EBITDA(1)
    
    $
    27,711
    
    
    $
    6,416
    
    
    $
    (5,618
    )
    
    $
    
    
    
    $
    28,509Three months ended March 31, 2007Revenue from external customers
    
    $
    126,124
    
    
    $
    18,531
    
    
    $
    
    
    
    $
    
    
    
    $
    144,655Intersegment revenue
    
    
    
    
    
    
    14,469
    
    
    
    
    
    
    
    (14,469
    )
    
    
    Total revenue
    
    $
    126,124
    
    
    $
    33,000
    
    
    $
    
    
    
    
    (14,469
    )
    
    $
    144,655Segment capital expenditures
    
    $
    8,566
    
    
    $
    222
    
    
    $
    (2,409
    )
    
    $
    
    
    
    $
    6,379EBITDA(1)
    
    $
    23,118
    
    
    $
    4,972
    
    
    $
    (4,332
    )
    
    $
    
    
    
    $
    23,758
 
 (1)
    
    EBITDA is defined as net income before depreciation, amortization and interest expense (net
of interest income) and the provision for income taxes. See reconciliation of net income to
EBITDA and a discussion of its uses and limitations on pages 19-21 of this quarterly report.  Long-term
    
    AncillaryCare Services
    
    Services
    
    Other
    
    TotalMarch 31, 2008:Segment total assets
    
    $
    863,648
    
    
    $
    73,532
    
    
    $
    49,293
    
    
    $
    986,473Goodwill and intangibles included in total assets
    
    $
    446,486
    
    
    $
    36,392
    
    
    $
    
    
    
    $
    482,878December 31, 2007:Segment total assets
    
    $
    863,698
    
    
    $
    71,695
    
    
    $
    34,714
    
    
    $
    970,107Goodwill and intangibles included in total assets
    
    $
    447,304
    
    
    $
    36,498
    
    
    $
    
    
    
    $
    483,802
 5. Income Taxes
   9




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##### Table of Contents



SKILLED HEALTHCARE GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 6. Other Current Assets and Other Assets
  March 31, 2008
    
    
    December 31, 2007Receivable from escrow
    
    $
    7,031
    
    
    $
    7,031Current portion of notes receivable
    
    
    1,795
    
    
    
    2,056Supply inventories
    
    
    2,548
    
    
    
    2,533Other current assets
    
    
    76
    
    
    
    77$
    11,450
    
    
    $
    11,697
  March 31, 2008
    
    
    December 31, 2007Equity investment in pharmacy joint venture
    
    $
    4,193
    
    
    $
    4,183Restricted cash
    
    
    12,013
    
    
    
    10,697Investments
    
    
    2,191
    
    
    
    2,666Deposits and other assets
    
    
    5,139
    
    
    
    4,915$
    23,536
    
    
    $
    22,461
 7. Other Long-Term Liabilities
  March 31, 2008
    
    
    December 31, 2007Deferred rent
    
    $
    3,915
    
    
    $
    3,569Other long-term tax liability
    
    
    11,761
    
    
    
    11,761Asbestos abatement liability
    
    
    5,298
    
    
    
    5,252Interest rate swap fair value
    
    
    3,522
    
    
    
    1,228$
    24,496
    
    
    $
    21,810
 8. Commitments and Contingencies
 Litigation
    10




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##### Table of Contents



SKILLED HEALTHCARE GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Insurance
  Workers Compensation.
    General and Professional Liability.
    Employee Medical Insurance.
 11




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##### Table of Contents



SKILLED HEALTHCARE GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   March 31, 2008
    
    
    December 31, 2007General and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General andProfessional
    
    
    Employee
    
    
    Workers
    
    
    
    
    
    
    Professional
    
    
    Employee
    
    
    WorkersLiability
    
    
    Medical
    
    
    Compensation
    
    
    Total
    
    
    Liability
    
    
    Medical
    
    
    Compensation
    
    
    TotalCurrent
    
    $
    10,338
    (1)
    
    $
    1,628
    (2)
    
    $
    3,546
    (2)
    
    $
    15,512
    
    
    $
    15,909
    (1)
    
    $
    1,070
    (2)
    
    $
    3,546
    (2)
    
    $
    20,525Non-current
    
    
    21,761
    
    
    
    
    
    
    
    9,343
    
    
    
    31,104
    
    
    
    15,230
    
    
    
    
    
    
    
    9,018
    
    
    
    24,248$
    32,099
    
    
    $
    1,628
    
    
    $
    12,889
    
    
    $
    46,616
    
    
    $
    31,139
    
    
    $
    1,070
    
    
    $
    12,564
    
    
    $
    44,773
 
 (1)
    
    Included in accounts payable and accrued liabilities.(2)
    
    Included in employee compensation and benefits. Financial Guarantees
  9. Stockholders Equity
 Comprehensive Income
  2007 Stock Incentive Plan
 Share-Based Payments
 Risk-free interest rate
    
    
    3.20
    %Expected life
    
    6.25 yearsDividend yield
    
    
    0
    %Volatility
    
    
    40.80
    %Weighted-average fair value
    
    $
    5.74
   12




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##### Table of Contents



SKILLED HEALTHCARE GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Term
    
    
    IntrinsicShares
    
    
    Price
    
    
    (in years)
    
    
    ValueOutstanding at January 1, 2008
    
    
    169,000
    
    
    $
    15.42Granted
    
    
    125,000
    
    
    $
    12.74Exercised
    
    
    
    
    
    $
    Forfeited or cancelled
    
    
    
    
    
    $
    Outstanding at March 31, 2008
    
    
    294,000
    
    
    $
    14.28
    
    
    
    9.50
    
    
    $
    Exercisable at March 31, 2008
    
    
    33,500
    
    
    $
    15.50
    
    
    
    9.12
    
    
    $
    
   10. Fair Value Measurements
    Level 1
    
    Level 2
    
    Level 3
    
    TotalInvestments available-for-sale
    
    $
    
    
    
    $
    1,453
    
    
    $
    
    
    
    $
    1,453Interest rate swap
    
    
    
    
    
    
    (3,522
    )
    
    
    
    
    
    
    (3,522
    )
 13




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##### Table of Contents



SKILLED HEALTHCARE GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  11. Debt
   March 31,
    
    
    December 31,2008
    
    
    2007Revolving Credit Facility, swing line subfacility,
interest rate based on prime plus 1.75% (7.00% at March
31, 2008) collateralized by real property, due 2010
    
    $
    6,000
    
    
    $
    8,000Revolving Credit Facility, interest rate based on LIBOR
plus 2.75% (5.59% at March 31, 2008) collateralized by
real property, due 2010
    
    
    72,000
    
    
    
    60,000Term Loan, interest rate based on LIBOR plus 2.00%
(5.24% at March 31, 2008) collateralized by real
property, due 2012
    
    
    252,850
    
    
    
    253,5002014 Notes, interest rate 11.0%, with an original issue
discount of $625 and $652 at March 31, 2008 and December
31, 2007, respectively, interest payable semiannually,
principal due 2014, unsecured
    
    
    129,375
    
    
    
    129,348Notes payable, fixed interest rate 6.5%, payable in
monthly installments, collateralized by a first priority
deed of trust, due November 2014
    
    
    1,839
    
    
    
    1,893Other
    
    
    1,319
    
    
    
    2,310Present value of capital lease obligations at effective
interest rates, collateralized by property and equipment
    
    
    2,196
    
    
    
    3,385Total long-term debt and capital leases
    
    
    465,579
    
    
    
    458,436Less amounts due within one year
    
    
    (4,173
    )
    
    
    (6,335
    )Long-term debt and capital leases, net of current portion
    
    $
    461,406
    
    
    $
    452,101
 12. Subsequent Events
  14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Managements Discussion and Analysis of Financial Condition and Results of Operations is
intended to assist in understanding and assessing the trends and significant changes in our results
of operations and financial condition. Historical results may not indicate future performance. Our
forward-looking statements, which reflect our current views about future events, are based on
assumptions and are subject to known and unknown risks and uncertainties that could cause actual
results to differ materially from those contemplated by these statements. Factors that may cause
differences between actual results and those contemplated by forward-looking statements include,
but are not limited to, those discussed in Part II, Item 1A, Risk Factors, of our Form 10-K for
the year ended December 31, 2007. As used in this Managements Discussion and Analysis of Financial
Condition and Results of Operations, the words, we, our and us refer to Skilled Healthcare
Group, Inc. and its consolidated subsidiaries. This Managements Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with our condensed
consolidated financial statements and related notes included in this report.
 Certain prior year amounts have been reclassified to conform to current year presentation.
 Business Overview
  Revenue
 Revenue by Service Offering
   15




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##### Table of Contents



Percentage Total RevenueThree Months Ended March 312008
    
    
    2007Revenue
    
    
    Percentage of
    
    
    Revenue
    
    
    Percentage ofDollars
    
    
    Revenue
    
    
    Dollars
    
    
    RevenueLong-term care services:Skilled nursing facilities
    
    $
    154,283
    
    
    
    85.4
    %
    
    $
    122,037
    
    
    
    84.4
    %Assisted living facilities
    
    
    4,534
    
    
    
    2.5
    
    
    
    4,087
    
    
    
    2.8Total long-term care services
    
    
    158,817
    
    
    
    87.9
    
    
    
    126,124
    
    
    
    87.2Ancillary services :Third-party rehabilitation
therapy services
    
    
    17,480
    
    
    
    9.7
    
    
    
    16,885
    
    
    
    11.7Hospice
    
    
    4,430
    
    
    
    2.4
    
    
    
    1,646
    
    
    
    1.1Total ancillary services
    
    
    21,910
    
    
    
    12.1
    
    
    
    18,531
    
    
    
    12.8Total
    
    $
    180,727
    
    
    
    100.0
    %
    
    $
    144,655
    
    
    
    100.0
    %
 Sources of Revenue
 Long-Term Care Services Segment
 Skilled Nursing Facilities.
  Percentage Skilled Nursing Patient DaysThree Months Ended March 31,2008
    
    2007Medicare
    
    
    18.3
    %
    
    
    19.5
    %Managed care
    
    
    7.4
    
    
    
    5.8Skilled mix
    
    
    25.7
    
    
    
    25.3Private and other
    
    
    16.8
    
    
    
    16.2Medicaid
    
    
    57.5
    
    
    
    58.5Total
    
    
    100.0
    %
    
    
    100.0
    %
  Revenue by StateThree Months Ended March 312008
    
    
    2007Revenue
    
    
    Percentage of
    
    
    Revenue
    
    
    Percentage ofDollars
    
    
    Revenue
    
    
    Dollars
    
    
    RevenueCalifornia
    
    $
    66,505
    
    
    
    41.9
    %
    
    $
    62,585
    
    
    
    49.6
    %Kansas
    
    
    10,478
    
    
    
    6.6
    
    
    
    9,195
    
    
    
    7.3Missouri
    
    
    14,353
    
    
    
    9.0
    
    
    
    8,102
    
    
    
    6.4Nevada
    
    
    7,419
    
    
    
    4.7
    
    
    
    6,144
    
    
    
    4.9New Mexico
    
    
    17,369
    
    
    
    10.9
    
    
    
    
    
    
    
    Texas
    
    
    42,693
    
    
    
    26.9
    
    
    
    40,098
    
    
    
    31.8Total
    
    $
    158,817
    
    
    
    100.0
    %
    
    $
    126,124
    
    
    
    100.0
    %
 16




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##### Table of Contents



Assisted Living Facilities.
 Ancillary Service Segment
 Rehabilitation Therapy.
 Hospice.
 Regulatory and Other Governmental Actions Affecting Revenue
  Three Months Ended March 31,2008
    
    
    2007Revenue
    
    
    Percentage
    
    
    Revenue
    
    
    PercentageDollars
    
    
    of Revenue
    
    
    Dollars
    
    
    of RevenueMedicare
    
    $
    67,596
    
    
    
    37.4
    %
    
    $
    55,286
    
    
    
    38.2
    %Medicaid
    
    
    55,493
    
    
    
    30.7
    
    
    
    42,613
    
    
    
    29.5Subtotal Medicare and Medicaid
    
    
    123,089
    
    
    
    68.1
    
    
    
    97,899
    
    
    
    67.7Managed Care
    
    
    18,139
    
    
    
    10.0
    
    
    
    11,750
    
    
    
    8.1Private and Other
    
    
    39,499
    
    
    
    21.9
    
    
    
    35,006
    
    
    
    24.2Total
    
    $
    180,727
    
    
    
    100.0
    %
    
    $
    144,655
    
    
    
    100.0
    %
  Medicare.
   17




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##### Table of Contents



Medicaid.
  Managed Care.
 Private Pay and Other.
 18




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##### Table of Contents



Critical Accounting Policies and Estimates Update
  Results of Operations
  Three Months EndedMarch 31,2008
    
    2007(Unaudited)Revenue
    
    
    100.0
    %
    
    
    100.0
    %Expenses:Cost of services (exclusive of rent cost
of revenue and depreciation and
amortization shown below)
    
    
    78.7
    
    
    
    78.8Rent cost of revenue
    
    
    2.5
    
    
    
    1.9General and administrative
    
    
    3.4
    
    
    
    3.3Depreciation and amortization
    
    
    2.8
    
    
    
    2.787.4
    
    
    
    86.7Other income (expenses):Interest expense
    
    
    (5.3
    )
    
    
    (8.4
    )Interest income
    
    
    0.1
    
    
    
    0.2Other
    
    
    0.1
    
    
    
    Equity in earnings of joint venture
    
    
    0.2
    
    
    
    0.4Change in fair value of interest rate hedge
    
    
    
    
    
    
    Total other income (expenses), net
    
    
    (4.9
    )
    
    
    (7.8
    )Income before provision for income taxes
    
    
    7.7
    
    
    
    5.5Provision for income taxes
    
    
    3.0
    
    
    
    2.3Net income
    
    
    4.7
    %
    
    
    3.2
    %EBITDA margin
    
    
    15.8
    %
    
    
    16.4
    %Adjusted EBITDA margin
    
    
    15.8
    %
    
    
    16.4
    %
 Three Months EndedMarch 31,2008
    
    
    2007(Unaudited)Reconciliation of net income to EBITDA and
Adjusted EBITDA (in thousands):Net income
    
    $
    8,444
    
    
    $
    4,654Interest expense, net of interest income
    
    
    9,439
    
    
    
    11,765Provision for income taxes
    
    
    5,466
    
    
    
    3,378Depreciation and amortization expense
    
    
    5,160
    
    
    
    3,961EBITDA
    
    
    28,509
    
    
    
    23,758Change in fair value of interest rate hedge
    
    
    
    
    
    
    33Adjusted EBITDA
    
    $
    28,509
    
    
    $
    23,791
  
    
    discontinued operations, net of tax;
    
    the effect of a change in accounting principle, net of tax;
    
    the change in fair value of an interest rate hedge;
 19




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##### Table of Contents




    
    reversal of a charge related to the decertification of a facility;
    
    gains or losses on sale of assets;
    
    provision for the impairment of long-lived assets;
    
    the write-off of deferred financing costs of extinguished debt;
    
    reorganization expenses; and
    
    fees and expenses related to our acquisition by Onex Corporation affiliates in 2005.
      20




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##### Table of Contents




    
    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 and Adjusted EBITDA
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 on-going operations; and
    
    other companies in our industry may calculate these measures differently than we do,
which may limit their usefulness as comparative measures.
  Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
 Revenue
  21




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##### Table of Contents



Cost of Services Expenses
     Rent cost of revenue
 22




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##### Table of Contents



General and Administrative Services Expenses
 Depreciation and Amortization
 Interest Expense
 Interest Income
 Provision for Income Taxes
 EBITDA
 Net Income
 23




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##### Table of Contents



Liquidity and Capital Resources
  Three Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007Net cash provided by operating activities
    
    $
    2,036
    
    
    $
    2,653Net cash used in investing activities
    
    
    (8,789
    )
    
    
    (50,101
    )Net cash provided by (used in) financing activities
    
    
    5,733
    
    
    
    45,005Net decrease in cash and equivalents
    
    
    (1,020
    )
    
    
    (2,443
    )Cash and equivalents at beginning of period
    
    
    5,012
    
    
    
    2,821Cash and equivalents at end of period
    
    $
    3,992
    
    
    $
    378
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
      24




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##### Table of Contents



Principal Debt Obligations and Capital Expenditures
     25




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##### Table of Contents



Other Factors Affecting Liquidity and Capital Resources
 Medical and Professional Malpractice and Workers Compensation Insurance
  26




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##### Table of Contents



Inflation
  Seasonality.
 Recent Accounting Standards
 Fair Value Measurements Effective Date of FASB Statement No. 157
  The
Fair Value Option for Financial Assets and Financial Liabilities
 Business Combinations
 27




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##### Table of Contents



Noncontrolling Interests in Consolidated Financial Statements  an amendment of ARB No. 51
 Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Exposure  Interest Rate Risk Management
   Twelve Months Ending March 31,2009
    
    2010
    
    2011
    
    2012
    
    Thereafter
    
    Total
    
    Fair ValueFixed-rate debt (1)
    
    $
    1,548
    
    
    $
    243
    
    
    $
    259
    
    
    $
    277
    
    
    $
    130,832
    
    
    $
    133,159
    
    
    $
    139,984Average interest rate
    
    
    4.4
    %
    
    
    6.5
    %
    
    
    6.5
    %
    
    
    6.5
    %
    
    
    11.0
    %Variable-rate debt
    
    $
    2,600
    
    
    $
    2,600
    
    
    $
    80,600
    
    
    $
    245,050
    
    
    $
    
    
    
    $
    330,850
    
    
    $
    305,565Average interest rate(2)
    
    
    4.3
    %
    
    
    4.5
    %
    
    
    6.1
    %
    
    
    6.0
    %
    
    
    0
    %
 
 (1)
    
    Excludes unamortized original issue discount of $0.6 million on our 11.0% senior subordinated
notes.(2)
    
    Based on implied forward three-month LIBOR rates in the yield curve as of March 31, 2008. 28




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##### Table of Contents



Notional
    
    Trade
    
    Effective
    
    
    
    
    
    Three Months Ended
    
    Fair ValueLoan
    
    Amount
    
    Date
    
    Date
    
    Maturity
    
    March 31, 2008
    
    (Pre-tax)First Lien
    
    $
    100,000
    
    
    
    10/24/07
    
    
    
    10/31/07
    
    
    
    12/31/09
    
    
    $
    141
    
    
    $
    3,522
 Accounting for Derivative Instruments and Hedging Activities
 
 Item 4. Controls and Procedures
  
 Item 4T. Controls and Procedures
 Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
  29




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##### Table of Contents



30




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##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibits
 Number
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of October 22, 2005, among SHG
Acquisition Corp., SHG Holding Solutions, Inc. and Skilled Healthcare
Group, Inc. (filed as Exhibit 2.1 to our Registration Statement on Form
S-1, No. 333-137897, filed on October 10, 2006, and incorporated herein
by reference).2.2
    
    Amendment No. 1 to Agreement and Plan of Merger, dated October 22, 2005,
by and between SHG Holding Solutions, Inc. and Skilled Healthcare Group,
Inc. (filed as Exhibit 2.2 to our Registration Statement on Form S-1,
No. 333-137897, filed on October 10, 2006, and incorporated herein by
reference).2.3
    
    Asset Purchase Agreement, dated as of January 31, 2006, by and among
Skilled Healthcare Group, Inc., each of the entities listed on Schedule
2.1 thereto, M. Terence Reardon and M. Sue Reardon, individually and as
Trustee of the M. Terence Reardon Trust U.T.A. dated June 26, 2003, and
M. Sue Reardon and M. Terence Reardon, as Trustees of the M. Sue Reardon
Trust U.T.A. dated June 26, 2003 (filed as Exhibit 2.3 to our
Registration Statement on Form S-1, No. 333-137897, filed on October 10,
2006, and incorporated herein by reference).2.4
    
    Agreement and Plan of Merger, dated as of February 7, 2007, by and among
SHG Holding Solutions, Inc., and Skilled Healthcare Group, Inc. (filed
as Exhibit 2.4 to our Registration Statement on Form S-1/A, No.
333-137897, filed on February 9, 2007, and incorporated herein by
reference).2.5
    
    Asset Purchase Agreement, dated February 8, 2007, by and among Skilled
Healthcare Group, Inc., Raymore Care Center LLC, Blue River Care Center
LLC, MLD Healthcare LLC, Blue River Real Estate LLC, MLD Real Estate
LLC, Melvin Dunsworth and Raymore Health Care, Inc. (filed as Exhibit
2.5 to our Registration Statement on Form S-1/A, No. 333-137897, filed
on April 23, 2007, and incorporated herein by reference).2.6+
    
    Asset Purchase Agreement, dated as of July 31, 2007, by and among
Skilled Healthcare Group, Inc. and certain affiliates of Laurel
Healthcare Providers, LLC (filed as Exhibit 2.6 to our Form 10-Q for the
quarter ended June 30, 2007, and incorporated herein by reference).3.1
    
    Amended and Restated Certificate of Incorporation of Skilled Healthcare
Group, Inc. (filed as Exhibit 3.2 to our Form 10-Q for the quarter ended
June 30, 2007, and incorporated herein by reference).3.2
    
    Amended and Restated By-Laws of Skilled Healthcare Group, Inc. (filed as
Exhibit 3.4 to our Registration Statement on Form S-1/A, No. 333-137897,
filed on April 27, 2007, and incorporated herein by reference).
 31




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##### Table of Contents



Number
    
    Description3.3
    
    Certificate of Ownership and Merger of Skilled Healthcare Group, Inc.,
dated February 7, 2007 (filed as Exhibit 3.1.1 to our Registration
Statement on Form S-1/A, No. 333-137897, filed on April 27, 2007, and
incorporated herein by reference).4.1
    
    Indenture, dated as of December 27, 2005, by and among SHG Acquisition
Corp., Wells Fargo Bank, N.A. and certain subsidiaries of Skilled
Healthcare Group, Inc. (filed as Exhibit 4.2 to our Registration
Statement on Form S-1, No. 333-137897, filed on October 10, 2006, and
incorporated herein by reference).4.2
    
    Registration Rights Agreement, dated as of December 27, 2005, by and
among SHG Acquisition Corp., all the subsidiaries of Skilled Healthcare
Group, Inc. listed therein, Credit Suisse First Boston, LLC and J.P.
Morgan Securities, Inc. (filed as Exhibit 4.3 to our Registration
Statement on Form S-1, No. 333-137897, filed on October 10, 2006, and
incorporated herein by reference).4.3
    
    Investor Stockholders Agreement, dated as of December 27, 2005, among
SHG Holding Solutions, Inc., Onex Partners LP and the stockholders
listed on the signature pages thereto (filed as Exhibit 4.4 to our
Registration Statement on Form S-1, No. 333-137897, filed on October 10,
2006, and incorporated herein by reference).4.4
    
    Registration Agreement dated December 27, 2005, among SHG Holding
Solutions, Inc. and the persons listed thereon (filed as Exhibit 4.5 to
our Registration Statement on Form S-1, No. 333-137897, filed on October
10, 2006, and incorporated herein by reference).4.5
    
    Form of specimen certificate for Skilled Healthcare Group, Inc.s class
A common stock (filed as Exhibit 4.1 to our Registration Statement on
Form S-1/A, No. 333-137897, filed on April 27, 2007, and incorporated
herein by reference).4.6
    
    Form of 11% Senior Subordinated Notes due 2014 (included in Exhibit 4.1).10.1
    
    Acknowledgement of Increasing Lenders, dated March 31, 2008 (filed as
Exhibit 10.1 to the Companys Form 8-K, filed on April 2, 2008, and
incorporated herein by reference).31.1
    
    Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.32
    
    Certification of Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 +
    
    The Company has omitted certain schedules and exhibits pursuant to Item 601(b)(2) of
Regulation S-K and shall furnish supplementally to the SEC copies of any of the omitted
schedules and exhibits upon the SECs request. 32




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##### Table of Contents



SIGNATURES
  SKILLED HEALTHCARE GROUP, INC.Date: May 7, 2008
    /s/ Devasis GhoseDevasis GhoseExecutive Vice President, Treasurer and Chief
Financial  Officer
(Principal Financial Officer  and Authorized Signatory)/s/ Christopher N. FelfeChristopher N. FelfeSenior Vice President, Finance and Chief
Accounting  Officer
(Principal  Accounting Officer and Authorized Signatory) 33




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##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of October 22, 2005, among SHG
Acquisition Corp., SHG Holding Solutions, Inc. and Skilled Healthcare
Group, Inc. (filed as Exhibit 2.1 to our Registration Statement on Form
S-1, No. 333-137897, filed on October 10, 2006, and incorporated herein
by reference).2.2
    
    Amendment No. 1 to Agreement and Plan of Merger, dated October 22, 2005,
by and between SHG Holding Solutions, Inc. and Skilled Healthcare Group,
Inc. (filed as Exhibit 2.2 to our Registration Statement on Form S-1,
No. 333-137897, filed on October 10, 2006, and incorporated herein by
reference).2.3
    
    Asset Purchase Agreement, dated as of January 31, 2006, by and among
Skilled Healthcare Group, Inc., each of the entities listed on Schedule
2.1 thereto, M. Terence Reardon and M. Sue Reardon, individually and as
Trustee of the M. Terence Reardon Trust U.T.A. dated June 26, 2003, and
M. Sue Reardon and M. Terence Reardon, as Trustees of the M. Sue Reardon
Trust U.T.A. dated June 26, 2003 (filed as Exhibit 2.3 to our
Registration Statement on Form S-1, No. 333-137897, filed on October 10,
2006, and incorporated herein by reference).2.4
    
    Agreement and Plan of Merger, dated as of February 7, 2007, by and among
SHG Holding Solutions, Inc., and Skilled Healthcare Group, Inc. (filed
as Exhibit 2.4 to our Registration Statement on Form S-1/A, No.
333-137897, filed on February 9, 2007, and incorporated herein by
reference).2.5
    
    Asset Purchase Agreement, dated February 8, 2007, by and among Skilled
Healthcare Group, Inc., Raymore Care Center LLC, Blue River Care Center
LLC, MLD Healthcare LLC, Blue River Real Estate LLC, MLD Real Estate
LLC, Melvin Dunsworth and Raymore Health Care, Inc. (filed as Exhibit
2.5 to our Registration Statement on Form S-1/A, No. 333-137897, filed
on April 23, 2007, and incorporated herein by reference).2.6+
    
    Asset Purchase Agreement, dated as of July 31, 2007, by and among
Skilled Healthcare Group, Inc. and certain affiliates of Laurel
Healthcare Providers, LLC (filed as Exhibit 2.6 to our Form 10-Q for the
quarter ended June 30, 2007, and incorporated herein by reference).3.1
    
    Amended and Restated Certificate of Incorporation of Skilled Healthcare
Group, Inc. (filed as Exhibit 3.2 to our Form 10-Q for the quarter ended
June 30, 2007, and incorporated herein by reference).3.2
    
    Amended and Restated By-Laws of Skilled Healthcare Group, Inc. (filed as
Exhibit 3.4 to our Registration Statement on Form S-1/A, No. 333-137897,
filed on April 27, 2007, and incorporated herein by reference).
 34




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##### Table of Contents



Number
    
    Description3.3
    
    Certificate of Ownership and Merger of Skilled Healthcare Group, Inc.,
dated February 7, 2007 (filed as Exhibit 3.1.1 to our Registration
Statement on Form S-1/A, No. 333-137897, filed on April 27, 2007, and
incorporated herein by reference).4.1
    
    Indenture, dated as of December 27, 2005, by and among SHG Acquisition
Corp., Wells Fargo Bank, N.A. and certain subsidiaries of Skilled
Healthcare Group, Inc. (filed as Exhibit 4.2 to our Registration
Statement on Form S-1, No. 333-137897, filed on October 10, 2006, and
incorporated herein by reference).4.2
    
    Registration Rights Agreement, dated as of December 27, 2005, by and
among SHG Acquisition Corp., all the subsidiaries of Skilled Healthcare
Group, Inc. listed therein, Credit Suisse First Boston, LLC and J.P.
Morgan Securities, Inc. (filed as Exhibit 4.3 to our Registration
Statement on Form S-1, No. 333-137897, filed on October 10, 2006, and
incorporated herein by reference).4.3
    
    Investor Stockholders Agreement, dated as of December 27, 2005, among
SHG Holding Solutions, Inc., Onex Partners LP and the stockholders
listed on the signature pages thereto (filed as Exhibit 4.4 to our
Registration Statement on Form S-1, No. 333-137897, filed on October 10,
2006, and incorporated herein by reference).4.4
    
    Registration Agreement dated December 27, 2005, among SHG Holding
Solutions, Inc. and the persons listed thereon (filed as Exhibit 4.5 to
our Registration Statement on Form S-1, No. 333-137897, filed on October
10, 2006, and incorporated herein by reference).4.5
    
    Form of specimen certificate for Skilled Healthcare Group, Inc.s class
A common stock (filed as Exhibit 4.1 to our Registration Statement on
Form S-1/A, No. 333-137897, filed on April 27, 2007, and incorporated
herein by reference).4.6
    
    Form of 11% Senior Subordinated Notes due 2014 (included in Exhibit 4.1).10.1
    
    Acknowledgement of Increasing Lenders, dated March 31, 2008 (filed as
Exhibit 10.1 to the Companys Form 8-K, filed on April 2, 2008, and
incorporated herein by reference).31.1
    
    Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.32
    
    Certification of Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 +
    
    The Company has omitted certain schedules and exhibits pursuant to Item 601(b)(2) of
Regulation S-K and shall furnish supplementally to the SEC copies of any of the omitted
schedules and exhibits upon the SECs request. 35