Exhibit 99.2

FC-GEN Acquisition Holding, LLC and Subsidiaries

Consolidated Financial Statements

Index to Consolidated Financial Statements

On January 1, 2008, FC-GEN Investment, LLC (the Parent) contributed 100% of the capital stock of FC-GEN Acquisition, Inc. (Acquisition Corp.) to a related entity, FC-GEN Acquisition Holding, LLC (the Company). On July 13, 2007, FC-GEN Acquisition, Inc., through its wholly owned subsidiary GEN Acquisition, Corp., (Merger Corp) merged with and into Genesis HealthCare Corporation (the Predecessor Company or GHC), with GHC and its subsidiaries continuing as the surviving corporation and assuming all of the debt obligations of Merger Corp. The term “Successor” refers to Acquisition Corp. and the Company after giving effect to the consummation of the merger. The term “Predecessor” refers to GHC prior to giving effect to the consummation of the merger. See note 1 — “General Information — The Merger.”

		Page
Independent Auditors’ Report			2
Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008 (Successor)			3
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008 and for the period from July 14, 2007 through December 31, 2007 (Successor); and the period January 1, 2007 through July 13, 2007 (Predecessor)			4
Consolidated Statements of Equity and Other Comprehensive Income (Loss) for the years ended December 31, 2009 and 2008 and for the period from July 14, 2007 through December 31, 2007 (Successor); and the period January 1, 2007 through July 13, 2007 (Predecessor)			5
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008 and for the period from July 14, 2007 through December 31, 2007 (Successor); and the period January 1, 2007 through July 13, 2007 (Predecessor)			6
Notes to Consolidated Financial Statements			7

Independent Auditors’ Report

The Board of Managers
FC-GEN Acquisition Holding, LLC

We have audited the accompanying consolidated balance sheets of FC-GEN Acquisition Holding, LLC and subsidiaries (the Company) (formerly FC-GEN Acquisition, Inc. and subsidiaries) (Successor) as of December 31, 2009 and 2008, and the related consolidated statements of operations, equity and other comprehensive income (loss), and cash flows for the years ended December 31, 2009 and 2008 and for the period from July 14, 2007 to December 31, 2007 (Successor periods), and the Genesis HealthCare Corporation and subsidiaries (Predecessor) consolidated statements of operations, equity and other comprehensive income (loss), and cash flows for the period from January 1, 2007 to July 13, 2007 (Predecessor periods). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the Successor consolidated financial statements referred to above present fairly, in all material respects, the financial position of FC-GEN Acquisition Holding, LLC and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the Successor periods, in conformity with U.S. generally accepted accounting principles. Further, in our opinion, the aforementioned Predecessor consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Genesis HealthCare Corporation and its subsidiaries for the Predecessor periods, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective July 14, 2007, FC-GEN Acquisition, Inc. acquired all of the outstanding stock of Genesis HealthCare Corporation in a business combination accounted for as a purchase (the Merger). As a result of the Merger, the consolidated financial information for the periods after the Merger is presented on a different cost basis than that for the periods before the Merger and, therefore, is not comparable.

As discussed in Note 11 to the consolidated financial statements, the Company has changed its method of accounting for uncertainty in income taxes on January 1, 2009 due to the adoption of Accounting Standard Codification Topic 740, Income Taxes. As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for noncontrolling interests on January 1, 2009 due to the adoption of Accounting Standard Codification Topic 810, Consolidation. As discussed in Note 16 to the consolidated financial statements, the Company has changed its method of accounting for fair value measurements for recurring financial assets and liabilities on January 1, 2008 and for nonfinancial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis on January 1, 2009 due to the adoption of Accounting Standard Codification Topic 820, Fair Value Measurements.

FC-GEN ACQUISITION HOLDING, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

		Successor
		December 31, 2009				December 31, 2008
Assets:
Current assets:
Cash and equivalents		$	109,573			$	72,842
Current portion of restricted cash and investments in marketable securities			41,376				36,584
Accounts receivable, net of allowances for doubtful accounts of $41,467 in 2009 and $35,046 in 2008			287,551				285,826
Prepaid expenses and other current assets			79,993				69,067
Current portion of deferred income taxes			40,832				42,150
Total current assets			559,325				506,469
Property and equipment, net of accumulated depreciation of $197,068 in 2009 and $115,114 in 2008			1,787,483				1,774,707
Restricted cash and investments in marketable securities			59,337				64,857
Other long-term assets			65,114				80,244
Identifiable intangible assets, net of accumulated amortization of $17,521 in 2009 and $11,897 in 2008			66,871				87,699
Goodwill			119,090				119,090
Total assets		$	2,657,220			$	2,633,066
Liabilities and Equity:
Current liabilities:
Current installments of long-term debt		$	10,432			$	12,384
Accounts payable			72,315				63,970
Accrued expenses			57,038				51,384
Accrued compensation			98,545				93,291
Accrued interest			22,189				10,481
Current portion of self-insurance liability reserves			57,350				44,777
Total current liabilities			317,869				276,287
Long-term debt			1,864,977				1,841,163
Deferred income taxes			252,424				244,345
Self-insurance liability reserves			105,878				100,609
Other long-term liabilities			84,682				96,918
Commitments and contingencies
FC-Gen Acquisition Holding, LLC members’ equity:
Capital stock, no par value, 1,500 shares authorized, 1,500 shares issued and outstanding			—				—
Additional paid-in capital			242,179				274,784
Accumulated deficit			(220,962	)			(208,140	)
Accumulated other comprehensive income			1,645				714
Total FC-GEN Acquisition Holding, LLC members’ equity			22,862				67,358
Noncontrolling interests			8,528				6,386
Total equity			31,390				73,744
Total liabilities and equity		$	2,657,220			$	2,633,066

See accompanying notes to the consolidated financial statements.

FC-GEN ACQUISITION HOLDING, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

		Successor												Predecessor
														Period from
										Period from July 14,				January 1, 2007
		Year ended				Year ended				2007 through				through July 13,
		December 31, 2009				December 31, 2008				December 31, 2007				2007
Net revenues		$	2,376,967			$	2,237,590			$	956,291			$	1,068,978
Salaries, wages and benefits			1,464,757				1,364,004				588,743				645,244
Other operating expenses			493,655				496,950				201,533				229,995
General and administrative costs			115,212				127,154				50,814				69,415
Provision for losses on accounts receivable and notes receivable			21,578				20,862				8,557				9,222
Merger related costs			—				—				—				57,567
Lease expense			23,999				27,952				13,913				12,046
Depreciation and amortization expense			85,151				83,232				37,458				39,086
Accretion expense			292				293				113				148
Interest expense			138,008				195,199				121,585				16,318
Loss on early extinguishment of debt			12,306				661				—				—
Investment income			(2,145	)			(1,238	)			(4,155	)			(6,123	)
Other loss (income)			2,238				(4,543	)			—				(2,974	)
Goodwill impairment			—				125,951				—				—
Long-lived asset impairment			17,358				10,787				—				—
Equity in net income of unconsolidated affiliates			(435	)			(237	)			(479	)			(403	)
Income (loss) before income tax expense (benefit)			4,993				(209,437	)			(61,791	)			(563	)
Income tax expense (benefit)			17,105				(37,618	)			(25,425	)			6,763
Loss from continuing operations			(12,112	)			(171,819	)			(36,366	)			(7,326	)
Income (loss) from discontinued operations, net of taxes			657				649				1,051				(173	)
Net loss			(11,455	)			(171,170	)			(35,315	)			(7,499	)
Less net income attributable to noncontrolling interests			(1,367	)			(1,369	)			(286	)			(489	)
Net loss attributable to FC-GEN Acquisition Holding, LLC		$	(12,822	)		$	(172,539	)		$	(35,601	)		$	(7,988	)

See accompanying notes to the consolidated financial statements.

FC-GEN ACQUISITION HOLDING, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)

																										Common stock
																										held in
														(Accumulated				Accumulated other								deferred				Deferred
		Capital				Common				Additional				deficit) retained				comprehensive				Treasury				compensation				compensation				Total shareholders’/				Noncontrolling
		stock				stock				paid-in capital				earnings				income (loss)				stock				plan				liability				members’ equity				interests				Total equity
Predecessor:
Balance at December 31, 2006 (Predecessor)		$	—			$	208			$	649,355			$	114,743			$	(130	)		$	(42,787	)		$	(11,003	)		$	6,388			$	716,774			$	3,862			$	720,636
Comprehensive loss:
Net loss			—				—				—				(7,988	)			—				—				—				—
Net unrealized gain on marketable securities, net of tax			—				—				—				—				426				—				—				—
Net decrease to minimum pension liability, net of tax			—				—				—				—				(84	)			—				—				—
Unrealized gain on VIE interest rate swap			—				—				—				—				36				—				—				—
Total comprehensive (loss) income																																			(7,610	)			489				(7,121	)
Tax benefits under SOP 90-7			—				—				3,542				—				—				—				—				—				3,542				—				3,542
Issuance of common stock under stock option plan and stock incentive plan			—				2				4,680				—				—				—				—				—				4,682				—				4,682
Stock-based compensation expense for stock options			—				—				1,786				—				—				—				—				—				1,786				—				1,786
Purchases and sales, net, of common stock in deferred compensation plan			—				—				127				—				—				—				(5,790	)			2,477				(3,186	)			—				(3,186	)
Disposition of noncontrolling interests			—				—				—				—				—				—				—				—				—				670				670
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				—				(172	)			(172	)
Balance at July 13, 2007 (Predecessor)		$	—			$	210			$	659,490			$	106,755			$	248			$	(42,787	)		$	(16,793	)		$	8,865			$	715,988			$	4,849			$	720,837
Successor:
Balance at July 14, 2007 (Successor)		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Capital contributed by parent			—				—				300,000				—				—				—				—				—				300,000								300,000
Comprehensive loss:
Net loss			—				—				—				(35,601	)			—				—				—				—
Net unrealized gain on marketable securities, net of tax			—				—				—				—				652				—				—				—
Unrealized loss on VIE interest rate swap			—				—				—				—				(45	)			—				—				—
Total comprehensive (loss) income																																			(34,994	)			286				(34,708	)
Tax benefits under SOP 90-7			—				—				2,574				—				—				—				—				—				2,574				—				2,574
Distributions to parent			—				—				(8,000	)			—				—				—				—				—				(8,000	)			—				(8,000	)
Acquisition of noncontrolling interests			—				—				—				—				—				—				—				—				—				4,849				4,849
Disposition of noncontrolling interests			—				—				—				—				—				—				—				—				—				5,223				5,223
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				—				(807	)			(807	)
Balance at December 31, 2007 (Successor)		$	—			$	—			$	294,574			$	(35,601	)		$	607			$	—			$	—			$	—			$	259,580			$	9,551			$	269,131
Comprehensive loss:
Net loss			—				—				—				(172,539	)			—				—				—				—
Net unrealized gain on marketable securities, net of tax			—				—				—				—				584				—				—				—
Net decrease to minimum pension liability, net of tax			—				—				—				—				(308	)			—				—				—
Unrealized loss on VIE interest rate swap			—				—				—				—				(169	)			—				—				—
Total comprehensive (loss) income																																			(172,432	)			1,369				(171,063	)
Tax expense under SOP 90-7			—				—				(1,390	)			—				—				—				—				—				(1,390	)			—				(1,390	)
Capital contributed by parent			—				—				8,000				—				—				—				—				—				8,000				—				8,000
Distributions to parent			—				—				(26,400	)			—				—				—				—				—				(26,400	)			—				(26,400	)
Disposition of noncontrolling interests			—				—				—				—				—				—				—				—				—				(3,357	)			(3,357	)
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				—				(1,177	)			(1,177	)
Balance at December 31, 2008 (Successor)		$	—			$	—			$	274,784			$	(208,140	)		$	714			$	—			$	—			$	—			$	67,358			$	6,386			$	73,744
Comprehensive loss:
Net loss			—				—				—				(12,822	)			—				—				—				—
Net unrealized gain on marketable securities, net of tax			—				—				—				—				478				—				—				—
Net increase to minimum pension liability, net of tax			—				—				—				—				308				—				—				—
Unrealized gain on VIE interest rate swap			—				—				—				—				145				—				—				—
Total comprehensive (loss) income																																			(11,891	)			1,367				(10,524	)
Tax benefit under SOP 90-7			—				—				3,395				—				—				—				—				—				3,395				—				3,395
Distributions to parent			—				—				(36,000	)			—				—				—				—				—				(36,000	)			—				(36,000	)
Acquisition of noncontrolling interests			—				—				—				—				—				—				—				—				—				2,411				2,411
Disposition of noncontrolling interests			—				—				—				—				—				—				—				—				—				(340	)			(340	)
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				—				(1,296	)			(1,296	)
Balance at December 31, 2009 (Successor)		$	—			$	—			$	242,179			$	(220,962	)		$	1,645			$	—			$	—			$	—			$	22,862			$	8,528			$	31,390

See accompanying notes to the consolidated financial statements.

FC-GEN ACQUISITION HOLDING, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

		Successor												Predecessor
														Period from
										Period from July				January 1, 2007
		Year ended				Year ended				14, 2007 through				through July 13,
		December 31, 2009				December 31, 2008				December 31, 2007				2007
Cash flows from operating activities:
Net loss		$	(11,455	)		$	(171,170	)		$	(35,315	)		$	(7,499	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Merger related expenses			—				—				—				57,567
Non-cash interest expenses			4,488				46,115				48,216				946
Non-cash compensation expenses			—				—				—				8,086
Other non-cash charges and (gains)			294				(913	)			—				312
Depreciation and amortization			85,151				83,232				37,586				39,237
Provision for losses on accounts receivable and notes receivable			21,578				20,862				8,552				9,225
Equity in net income of unconsolidated affiliates			(435	)			(237	)			(346	)			(271	)
Provision for deferred taxes			13,564				(38,115	)			(20,371	)			13,651
Excess tax benefits from share-based payment arrangements			—				—				—				(477	)
Amortization of deferred rents			6,409				7,951				4,385				1,441
Other loss on purchase of joint venture			2,760				—				—				—
Gain on sale of discontinued operations			—				(1,374	)			—				—
Goodwill impairment			—				125,951				—				—
Long-lived asset impairment			17,358				10,787				—				—
Loss on early extinguishment of debt			12,306				661				—				—
Changes in assets and liabilities:
Accounts receivable			(17,757	)			(57,092	)			(7,033	)			(16,410	)
Accounts payable and other accrued expenses and other			34,609				55,097				(19,246	)			2,791
Total adjustments			180,325				252,925				51,743				116,098
Net cash provided by operating activities			168,870				81,755				16,428				108,599
Cash flows from investing activities:
Capital expenditures			(53,446	)			(47,780	)			(51,260	)			(56,888	)
Purchases of restricted cash and marketable securities			(412,996	)			(1,008,306	)			(23,152	)			(23,596	)
Proceeds on maturity or sale of restricted cash and marketable securities			412,683				984,428				33,233				27,846
Net change in restricted cash and equivalents			(3,704	)			25,348				(12,282	)			(9,089	)
Purchases of inpatient centers and lease amendments			—				—				—				(22,138	)
Proceeds from sale of inpatient assets			1,972				18,576				11,509				—
Purchase of GHC common stock, net of cash acquired			—				—				(1,388,496	)			—
Investment in joint venture			(5,600	)			—				—				—
Proceeds from notes receivable			—				7,851				4,054				—
Other, net			2,390				833				1,029				1,808
Net cash used in investing activities			(58,701	)			(19,050	)			(1,425,365	)			(82,057	)
Cash flows from financing activities:
Borrowings under revolving credit facility			—				25,000				—				—
Repayments under revolving credit facility			—				(25,000	)			(6,000	)			(33,000	)
Proceeds from issuance of long-term debt			36,500				11,500				1,679,140				—
Repayment of long-term debt			(54,292	)			(15,076	)			(344,529	)			(10,808	)
Debt issuance costs			(17,928	)			—				—				—
Merger financing and other fees			—				(8,000	)			(158,255	)			—
Distributions by noncontrolling interests			(1,718	)			(13,306	)			—				—
Proceeds from exercise of stock options			—				—				—				917
Capital contributed by parent			—				8,000				300,000				—
Distributions to parent			(36,000	)			(26,400	)			(8,000	)			—
Excess tax benefits from share-based payment arrangements			—				—				—				477
Net cash (used in) provided by financing activities			(73,438	)			(43,282	)			1,462,356				(42,414	)
Net increase (decrease) in cash and equivalents			36,731				19,423				53,419				(15,872	)
Cash and equivalents:
Beginning of period			72,842				53,419				—				66,270
End of period		$	109,573			$	72,842			$	53,419			$	50,398
Supplemental disclosure of cash flow information:
Interest paid		$	133,132			$	151,088			$	68,258			$	15,677
Taxes paid (refunded)			2,756				(5,716	)			(1,612	)			3,210
Non-cash financing activities:
Capital leases		$	31,589			$	52,982			$	13,822			$	40,013
Assumption of long-term debt			12,667				—				—				—

See accompanying notes to the consolidated financial statements.

FC-GEN Acquisition Holding, LLC and Subsidiaries

Notes to Consolidated Financial Statements

(1) General Information

     The Merger

     FC-GEN Acquisition Holding, LLC (the Company) was formed in 2007 to hold the shares of the Company. The Company shall continue indefinitely unless terminated in accordance with its Second Amended and Restated Limited Liability Company Agreement and its members have no individual liability.

     On July 13, 2007, Acquisition Corp, through its wholly owned subsidiary GEN Acquisition Corp., (Merger Corp) merged with and into Genesis HealthCare Corporation (GHC or the Predecessor Company), with GHC and its subsidiaries continuing as the surviving corporation and assuming all of the debt obligations of Merger Corp (the Merger). Private equity funds managed by affiliates of Formation Capital, LLC and JER Partners (collectively the “Sponsors”) wholly own the Company’s Parent. Acquisition Corp was incorporated in January 2007 for the purpose of acquiring GHC and did not have any operations prior to July 13, 2007 other than in connection with the Merger. Unless the context otherwise requires, references in this report to the “Company” refers to the operations of GHC prior to the Merger, Acquisition Corp from July 13, 2007 through December 31, 2007 and FC-GEN Acquisition Holding, LLC subsequent to January 1, 2008.

     The Merger transaction, including the redemption of previous debt and the payment of related fees and expenses, was financed by equity contributions of $300 million, the issuance of $1.3 billion of aggregate principal amount of a variable rate senior term loan and the issuance of $379 million of aggregate principal amount of a variable rate unsecured senior subordinated mezzanine term loan.

     The transaction was treated as a purchase and thus the assets and liabilities were recorded at their respective fair value at July 14, 2007. This resulted in a significant increase to the value of the Company’s property and equipment, identifiable intangible assets, deferred tax liabilities and goodwill.

     Description of Business

     The Company provides inpatient services through skilled nursing and assisted living centers primarily located in the eastern United States. The Company has 233 owned, leased, managed and jointly owned eldercare centers as of December 31, 2009. Revenues of the Company’s owned, leased and otherwise consolidated centers constitute approximately 86% of its revenues.

     The Company provides a range of rehabilitation therapy services, including speech pathology, physical therapy and occupational therapy. These services are provided by rehabilitation therapists and assistants employed or contracted at substantially all of the centers operated by the Company, as well as by contract to healthcare facilities operated by others. After the elimination of intercompany revenues, the rehabilitation therapy services business constitutes approximately 12% of the Company’s revenues.

     The Company provides an array of other specialty medical services, including respiratory health services, management services, physician services, hospitality services, staffing services and other healthcare related services.

     Basis of Presentation

     The Merger has been reflected as of July 14, 2007 and the consolidated financial statements reflecting the financial position of the Company at December 31, 2009 and 2008 and the results of operations and cash flows for the years ended December 31, 2009 and 2008 and for the period from July 14, 2007 to December 31, 2007 (after giving effect to the Merger) are designated as “Successor” financial statements. The consolidated financial statements reflecting the results of operations and cash flows of the Company through the close of business on July 13, 2007 (prior to giving effect to the Merger) are designated “Predecessor” financial statements.

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

     The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In the opinion of management, the consolidated financial statements include all necessary adjustments for a fair presentation of the financial position and results of operations for the periods presented.

     Recently Adopted Accounting Standards

     In accordance with recently adopted accounting guidance, net loss attributable to FC-Gen Acquisition Holding, LLC and Subsidiaries and net income attributable to noncontrolling interests are disclosed separately on the face of the accompanying consolidated statements of operations. In addition, noncontrolling interests are reported as a separate component of equity in the consolidated balance sheets. Except as otherwise indicated, references to net income or components of members’ equity in the notes to consolidated financial statements represent amounts attributable to FC-Gen Acquisition Holding, LLC and Subsidiaries. Accordingly, certain amounts in the consolidated financial statements of prior periods have been reclassified to conform to current period presentation.

     In June 2009, the Financial Accounting Standards Board (FASB) established the FASB Accounting Standards Codification (ASC) as the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP). The ASC did not change GAAP but reorganizes the literature. The ASC became effective for the Company in 2009 and had no impact on the consolidated financial statements.

     ASC Topic 805, Business Combinations, revised accounting practices related to business combinations. For the Company, it was applied to business combinations subsequent to January 1, 2009 and when accounting for valuation allowances on deferred taxes and acquired tax contingencies for prior business combinations. There was no material financial statement impact upon adoption of the provisions of ASC Topic 805.

     In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through March 26, 2010, the date the consolidated financial statements were issued.

     Factors Affecting Comparability of Financial Information

     As a result of the Merger, the consolidated financial statements for the periods after the Merger are presented on a different cost basis than that for periods before the Merger, and therefore, are not comparable. The Company believes the Merger has affected the consolidated statements of operations of the Successor as compared to the Predecessor primarily in interest expense, accretion expense, lease expense and depreciation and amortization expense. This lack of comparability is due to differing capital structures and the application of purchase accounting resulting in a differing cost basis.

     Adjustments and Reclassifications

     The Company recorded an $8.0 million loan termination fee to interest expense in 2009, which represents an immaterial correction of an error. Management believes that the effect of the adjustment is not material to the consolidated financial position, results of operation or liquidity for any prior period. See note 9 — “Long-Term Debt — Mezzanine Term Loan.”

     Principles of Consolidation and Variable Interest Entities

     The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, its consolidated variable interest entities (VIEs) and certain other partnerships. All significant intercompany accounts and transactions have been eliminated in consolidation for all periods presented.

     The Company’s investments in VIEs in which it is the primary beneficiary are consolidated, while the investment in other VIEs in which it is not the primary beneficiary are accounted for under other accounting principles. Investments in and the operating results of 20% to 50% owned companies, which are not VIEs, are included in the consolidated financial statements using the equity method of accounting.

FC-GEN Acquisition Holding, LLC and Subsidiaries

Notes to Consolidated Financial Statements

     Consolidated VIEs and Other Consolidated Partnerships

     At December 31, 2009 and 2008, the Company consolidated four and five VIEs, respectively. The total assets of the VIEs principally consist of property and equipment that serves as collateral for the VIEs’ non-recourse debt and is not available to satisfy any of the Company’s other obligations. Creditors of the VIEs, including senior lenders, have no recourse against the general credit of the Company. The consolidated VIEs at December 31, 2009 own and operate skilled nursing and assisted living facilities. The Company’s ownership interests in the consolidated VIEs range from 25% to 50% and the Company manages the day-to-day operations of the consolidated VIEs under management agreements. The Company’s involvement with the VIEs began in years prior to 2000. During 2008, the Company sold its interest in one of its previously consolidated VIEs, which is accounted for as a discontinued operation. See note 18 — “Other — Assets Held for Sale and Discontinued Operations.”

     The Company consolidates two partnerships as it is the general partner in those entities and may exercise considerable control over the businesses without substantive kick out rights afforded to the limited partners. One of the partnerships is a jointly owned and managed skilled nursing facility. The second partnership owns the real estate of a skilled nursing facility leased to the Company. The total assets of these consolidated partnerships consist of property and equipment that serves as collateral for the partnerships’ non-recourse debt and is not available to satisfy any of the Company’s other obligations. Creditors of these consolidated partnerships, including senior lenders, have no recourse against the general credit of the Company.

     At December 31, 2009, total assets and non-recourse debt of the consolidated VIEs and other consolidated partnerships were $37.3 million and $27.3 million, respectively. At December 31, 2008, total assets and non-recourse debt of these consolidated partnerships were $37.7 million and $28.3 million, respectively.

     VIEs Not Consolidated

     Separate from the VIEs previously described, at December 31, 2009 and 2008, the Company is not the primary beneficiary of several additional VIEs and, therefore, those VIEs are not consolidated into its financial statements. The unconsolidated VIEs own and operate skilled nursing and assisted living facilities. The Company manages the day-to-day operations of these unconsolidated VIEs under management agreements. The Company’s involvement with 14 unconsolidated VIE’s began in 2008 followed by another two unconsolidated VIEs in 2009. The Company has determined that it is not the primary beneficiary of these VIEs. See note 12 — “Related Party Transactions.” The Company has not made an equity investment in these VIEs and, therefore, does not have equity at risk.

(2) Summary of Significant Accounting Policies

     The following accounting policies apply to both the Predecessor and Successor unless otherwise specified.

     Net Revenues and Accounts Receivable

     The Company receives payments through reimbursement from Medicaid and Medicare programs and directly from individual residents (private pay), third-party insurers and long-term care facilities.

     Inpatient services record revenue and the related receivables in the accounting records at the Company’s established billing rates in the period the related services are rendered. The provision for contractual adjustments, which represents the differences between the established billing rates and predetermined reimbursement rates, is deducted from gross revenue to determine net revenue. Retroactive adjustments that are likely to result from future examinations by third party payors are accrued on an estimated basis in the period the related services are rendered and adjusted as necessary in future periods based upon new information or final settlements.

     Rehabilitation therapy services and other ancillary services record revenue and the related receivables at the time services or products are provided or delivered to the customer. Upon delivery of products or services, the Company has no additional performance obligation to the customer.

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

     Use of Estimates

     The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; allowances for doubtful accounts and provisions for contractual adjustments; the valuation of derivatives, deferred tax assets, fixed assets, goodwill, intangible assets, investments and notes receivable; and reserves for employee benefit obligations, income tax uncertainties, asset retirement obligations and other contingencies. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

     Cash and Equivalents

     Short-term investments that have a maturity of ninety days or less at acquisition are considered cash equivalents. Investments in cash equivalents are carried at cost, which approximates fair value.

     Restricted Cash and Investments in Marketable Securities

     Restricted cash includes cash and money market funds principally held by the Company’s wholly owned captive insurance subsidiary, which is substantially restricted to securing the outstanding claims losses. The restricted cash and investments in marketable securities balances at December 31, 2009 and 2008 were $100.7 million and $101.4 million, respectively.

     Restricted investments in marketable securities, comprised of fixed interest rate securities, are considered to be available-for-sale and accordingly are reported at fair value with unrealized gains and losses, net of related tax effects, included within accumulated other comprehensive income (loss), a separate component of equity. Fair values for fixed interest rate securities are based on quoted market prices. Premiums and discounts on fixed interest rate securities are amortized or accreted over the life of the related security as an adjustment to yield.

     A decline in the market value of any security below cost that is deemed other-than-temporary is charged to income, resulting in the establishment of a new cost basis for the security. Realized gains and losses for securities classified as available for sale are derived using the specific identification method for determining the cost of securities sold. Impairment charges of $0.2 million and $3.9 million were recorded in the year ended December 31, 2009 and 2008, respectively, in connection with the impairment tests. See note 5 — “Restricted Cash and Investments in Marketable Securities.”

     Allowance for Doubtful Accounts

     The Company utilizes the “aging method” to evaluate the adequacy of its allowance for doubtful accounts. This method is based upon applying estimated standard allowance requirement percentages to each accounts receivable aging category for each type of payor. The Company has developed estimated standard allowance requirement percentages by utilizing historical collection trends and its understanding of the nature and collectibility of receivables in the various aging categories and the various segments of the Company’s business. The standard allowance percentages are developed by payor type as the accounts receivable from each payor type have unique characteristics. The allowance for doubtful accounts also considers accounts specifically identified as uncollectible. Accounts receivable that Company management specifically estimates to be uncollectible, based upon the age of the receivables, the results of collection efforts, or other circumstances, are reserved for in the allowance for doubtful accounts until they are written-off.

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

     Prepaid Expenses and Other Current Assets

     Prepaid expenses and other current assets principally consist of expenses paid in advance of the provision of services, inventories of nursing center food and supplies, non-trade receivables and $16.8 million and $13.8 million of escrowed funds held by third parties at December 31, 2009 and 2008, respectively, in accordance with loan and other contractual agreements.

     Property and Equipment

     Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over estimated useful lives of 20-35 years for building improvements, land improvements and buildings, and 3-15 years for equipment, furniture and fixtures and information systems. Depreciation expense on leasehold improvements and assets held under capital leases is calculated using the straight-line method over the lesser of the lease term or the estimated useful life of the asset. Expenditures for maintenance and repairs necessary to maintain property and equipment in efficient operating condition are charged to operations as incurred. Costs of additions and betterments are capitalized. Interest costs associated with major construction projects are capitalized in the period in which they are incurred.

     Total depreciation expense from continuing operations for the Successor periods for the years ended December 31, 2009 and 2008, and, from July 14, 2007 through December 31, 2007, and the Predecessor period from January 1, 2007 through July 13, 2007 was $83.9 million, $82.0 million, $36.9 million, and $38.8 million respectively.

     Allowance for Notes Receivable

     The Company classifies its notes receivable balances, net of allowances, in other long-term assets in its consolidated balance sheets. These long-term receivables represent the net realizable value of the Company’s loans receivable resulting principally from the conversion of trade accounts receivable and consideration received for certain enterprise sales transactions. The notes include varying payment terms, rates of interest and maturity dates based upon circumstances specific to each agreement. At least annually, the Company reviews the collectibility of its notes receivable on an individual basis to determine possible impairments and/or non-accrual status for interest terms. Impairments or write-downs to net realizable value are recorded in the consolidated statements of operations as a component of the provision for losses on accounts receivable and notes receivable. Subsequent recoveries of reserved notes receivable are recorded as a reduction to the provision for losses on accounts receivable and notes receivable in the period of such recovery.

     Long-Lived Assets

     The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to the future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized to the extent the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. Long-lived impairment charges of $17.4 million and $10.8 million were recorded in the year ended December 31, 2009 and 2008, respectively, in connection with the impairment tests. See note 17 — “Asset Impairment Charges — Long-Lived Assets with a Definite Useful Life.”

     The Company performs an impairment test for goodwill with an indefinite useful life annually or more frequently if adverse events or changes in circumstances indicate that the asset may be impaired. The Company performs its annual impairment test as of September 30, of each year. As a result of escalating unfavorable market conditions during the fourth quarter of 2008, the Company performed an interim update of an annual impairment test. Goodwill impairment charges of $126.0 million were recorded in the year ended December 31, 2008 in connection with the impairment tests. See note 17 — “Asset Impairment Charges — Goodwill.”

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

     Self-Insurance Risks

     The Company provides for self-insurance risks for both general and professional liability and workers’ compensation claims based on estimates of the ultimate costs for both reported claims and claims incurred but not reported. Estimated losses from asserted and incurred but not reported claims are accrued based on the Company’s estimates of the ultimate costs of the claims, which includes costs associated with litigating or settling claims, and the relationship of past reported incidents to eventual claims payments. All relevant information, including the Company’s own historical experience, the nature and extent of existing asserted claims and reported incidents, and independent actuarial analyses of this information is used in estimating the expected amount of claims. The Company also considers amounts that may be recovered from excess insurance carriers in estimating the ultimate net liability for such risks.

     Income Taxes

     Deferred income taxes arise from the recognition of the tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets are recovered or liabilities are settled. The Company also recognizes as deferred tax assets the future tax benefits from net operating loss (NOL) carryforwards. A valuation allowance is provided for these deferred tax assets if it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

     Comprehensive Income (Loss)

     Comprehensive income (loss) includes changes to equity during a period, except those resulting from investments by and distributions to members/shareholders. The components of comprehensive income (loss) are shown in the consolidated statements of equity.

     Leases

     Lease arrangements are capitalized when such leases convey substantially all the risks and benefits incidental to ownership. Capital leases are amortized over either the lease term or the life of the related assets, depending upon available purchase options and lease renewal features. Amortization related to capital leases is included in the consolidated statements of operations within depreciation and amortization expense.

     For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as lease expense on a straight-line basis over the applicable lease terms and any periods during which the Company has use of the property but is not charged rent by a landlord. Lease terms, in most cases, provide for rent escalations and renewal options.

     Favorable and unfavorable lease amounts are recorded as components of other identifiable intangible assets and other long-term liabilities, respectively, when the Company purchases businesses that have lease agreements. Favorable and unfavorable leases are amortized to lease expense on a straight-line basis over the remaining term of the leases. Upon early termination of a lease, due to non-renewal, the favorable or unfavorable lease contract balance associated with the lease contract is recognized as a loss or gain in the consolidated statement of operations.

     Reimbursement of Managed Property Labor Costs

     The Company manages the operations of 52 independently and jointly owned eldercare centers, including consolidated VIEs, and four transitional care units as of December 31, 2009. Under most of these arrangements, the Company employs the operational staff of the managed center for ease of benefit administration and bills the related wage and benefit costs on a dollar-for-dollar basis to the owner of the managed property. In this capacity, the Company operates as an agent on behalf of the managed property owner and is not the primary obligor in the context of a traditional employee/employer relationship. Historically, the Company has treated these transactions on a “net basis,” thereby not reflecting the billed labor and benefit costs as a component of its net revenue or expenses. For the Successor

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

periods for the years ended December 31, 2009 and 2008, and from July 14, 2007 through December 31, 2007, and the Predecessor period from January 1, 2007 through July 13, 2007, the Company billed its managed clients $120.7 million, $112.9 million, $51.9 million and $60.0 million, respectively, for such labor related costs.

     Stock-Based Benefit Plans

     The Predecessor Company recognized compensation costs related to stock-based benefit plans in the consolidated financial statements. The cost was measured at the grant date, based on the estimated fair value of the award, and was recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). The Successor Company does not have any stock-based benefit plans.

     Derivative Financial Instruments

     The Company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. The fair value adjustments will affect either equity or net income, depending on whether the derivative instrument is designated as or qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. The Company uses interest rate swap and interest rate cap agreements for the specific purpose of hedging the exposure to variability in market rates of interest.

     Asset Retirement Obligations

     The fair value of a liability for an asset retirement obligation is recognized in the period when the asset is placed in service. The fair value of the liability is estimated using discounted cash flows. In subsequent periods, the retirement obligation is accreted to its future value or the estimate of the obligation at the asset retirement date. The accretion charge is reflected separately on the consolidated statement of operations. A corresponding retirement asset equal to the fair value of the retirement obligation is also recorded as part of the carrying amount of the related long-lived asset and depreciated over the asset’s useful life.

     Recently Issued Accounting Standards

     Variable Interest Entities

     In June 2009, the FASB amended ASC 810, Consolidation, to provide additional guidance on determining whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE based on the power to direct the activities of the VIE and the obligation to absorb losses of the VIE. The guidance requires an entity to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance. Additionally, the guidance requires an entity to assess, on an ongoing basis, whether or not it continues to be the primary beneficiary of a VIE. The guidance is effective for annual reporting periods beginning after November 15, 2009. This guidance is not effective for the Company until its fiscal year beginning January 1, 2010. The Company does not expect the guidance to have any impact on its financial position, cash flows or results of operations.

(3) Significant Transactions and Events

     Successor

     Investment in Joint Ventures

     In December 2009, the Company made an investment of $5.0 million and received a one-third interest in an unconsolidated joint venture. The Company will account for its interest under the equity method.

     On August 1, 2009, the Company completed a transaction in which it purchased an additional one-third ownership interest in a skilled nursing facility in Massachusetts for cash consideration of $1.1 million. The Company had owned a one-third interest in the joint venture prior to the transaction. The facility is now consolidated into the Company’s

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

financial statements with the remaining partner’s one-third ownership interest record as a noncontrolling interest. The transaction added property and equipment of $18.2 million and non-recourse debt of $14.1 million.

     Lease Transactions

     Effective August 1, 2009, the Company amended a lease for four facilities. The amended lease has a term that expires on November 30, 2015 and allows for one 5-year extension. Annual cash base rent will be $2.2 million with an annual rent escalator of 3%. The amended lease will continue to be accounted for as an operating lease.

     On May 26, 2009, the Company amended and restated a master lease agreement (Master Lease) for eleven centers leased through an independent real estate investment trust (Landlord). The Master Lease resulted in the following:

•

Collective annual cash lease payments increased by $2.0 million effective February 1, 2009;

•

The incremental minimum rent is charged annually based upon the minimum rent for the prior fiscal year multiplied by the greater of one plus one-half the percentage increase in the Consumer Price Index or 102.5%;

•

Renovation funds were established for three of the facilities totaling $2.1 million provided by the Landlord for capital improvements and renovations. The minimum rent paid to the Landlord will be increased by 10% for any amount disbursed from the renovation funds in periods subsequent to those disbursements;

•

Two of the leased facilities had their initial lease terms extended by approximately three years;

•

The leases were reevaluated for accounting classification and the Company concluded three of the remaining nine leases previously accounted for as operating leases would now be accounted for as capital leases. The three capital leases had obligations of $29.8 million at December 31, 2009.

     On September 30, 2008, the term of a long-term lease of seven facilities expired. Effective October 1, 2008, the Company entered into an amended lease of the seven facilities. The amended lease has a 10-year term and annual cash basis rent of $7.0 million, compared to approximately $5.3 million of annual cash basis rent in the last year of the previous lease. The amended lease includes a $66.5 million fixed price purchase option on all seven facilities exercisable in 2014. The transaction was recorded as a capital lease resulting in an initial $77.1 million of capital lease obligation, or approximately $47.4 million of capital lease obligation in excess of the obligation recorded under the previous lease.

     Effective July 1, 2008, the Company entered into a lease, which was incorporated into the Master Lease, of a facility with annual revenues of approximately $11.5 million. The facility was previously managed by the Company under a management agreement that earned annual management fee revenue of $0.6 million. The lease has an initial term of seven years with two 5-year renewal options. The lease was recorded as a capital lease resulting in $5.6 million of capital lease obligation.

     Amendments to Debt Agreements

     On September 25, 2009, the senior secured credit agreement and the mezzanine term loan agreement were amended. The amendments extended the terms of both of the agreements for five years with a maturity date of September 25, 2014. $40.0 million of senior secured term loan principal was repaid. The senior secured term loan interest rate was initially increased from LIBOR plus 2.00% to LIBOR plus 3.07%. The revolving credit facility was increased from $50.0 million to $75.0 million. The Company incurred $17.1 million of fees associated with the senior secured credit agreement, $13.0 million of which were expensed as a debt extinguishment cost and the remaining $4.1 million is deferred and amortized over the term of the debt.

     On March 27, 2008, the senior secured credit agreement and the mezzanine term loan agreement were amended. The amendments provided that if a predefined restructuring transaction did not occur on or before December 31, 2008, the senior secured credit facility lenders would receive an $8.0 million contingent interest payment and the interest rate on the mezzanine term loan would be increased and deferred with the outstanding balance of the mezzanine term loan. Also, the maximum available borrowing under the delayed draw term loan was reduced from $100.0 million to $37.5 million and the revolving credit facility was reduced from $100.0 million to $50.0 million.

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

     On December 11, 2008, the senior secured credit agreement and the mezzanine term loan agreement were amended. The amendments acknowledged that the previously described restructuring transaction would not occur on or before December 31, 2008, and the Company was released from any obligation to pursue the restructuring transaction. The increase to the interest rate on the mezzanine term loan was not levied against the Company; however, the $8.0 million contingent interest payment was paid to the senior lender in December 2008 and recognized as interest expense in the year ended December 31, 2008. See Note 9 — “Long-Term Debt.”

     The Merger

     The Merger was completed as of the close of business on July 13, 2007 and was financed with equity contributions of $300 million and the issuance of $1,679.1 million of debt.

     The Merger sources and uses of funds are summarized below (in thousands):

Sources
Senior term loan		$	1,300,000
Mezzanine term loan			379,140
Equity contributions			300,000
Total Sources		$	1,979,140

Uses
Purchase of predecessor company common stock and equivalents		$	1,438,894
Repayment of predecessor company debt and accrued interest			347,189
Fees and expenses			158,255
Cash held for operating activities			34,802
Total Uses		$	1,979,140

     The net assets acquired of $1,944.3 million is net of $34.8 million of cash in excess of the financing sources of $1,979.1 million. The total purchase price of the transaction was allocated to the Company’s net tangible and identifiable intangible assets based upon the estimated fair values at July 14, 2007. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The allocation of the purchase price to property and equipment, identifiable intangible assets and deferred income taxes was based upon valuation data and estimates. The purchase price allocation made in the accompanying consolidated financial statements is complete as of December 31, 2008.

     The following table summarizes the allocation of the purchase price as of July 14, 2007:

(in thousands)
Net current assets		$	216,687
Property and equipment			1,768,837
Other assets			199,829
Identifiable intangible assets			118,939
Goodwill			265,678
Debt assumed			(124,626	)
Non-current liabilities			(142,207	)
Deferred income tax liabilities			(358,799	)
Net assets acquired		$	1,944,338

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

     The goodwill recognized from the transaction is a result of the expected (i) cost savings from the elimination of stock-based benefits and compliance costs associated with being a publicly held company, (ii) implementation of certain organizational and legal structure modifications that better protect assets from liability risks, (iii) the Company’s cash flows supported by high occupancy and quality mix, and (iv) the growth opportunity the investors anticipate in the Company’s core businesses.

     Transaction consideration on the consolidated statement of cash flows of $1,388.5 million excludes cash and equivalents acquired of $50.4 million. Included in the transaction consideration are pre-payment penalties and conversion premiums of $83.0 million related to debt obligations of the Predecessor Company that were redeemed in connection with the transaction.

     During the period from January 1, 2007 through July 13, 2007, the Predecessor recorded costs of approximately $57.6 million related to the transaction. These costs, which are included in Merger related costs in the consolidated statements of operations, consist of approximately $26.0 million of accounting, investment banking, legal and other costs associated with the transaction, a compensation charge of approximately $22.3 million related to the accelerated vesting of employee stock options and restricted stock, an $8.3 million charge related to the write-off of unamortized deferred financing fees related to the Predecessor debt and a charge of approximately $1.0 million for transaction related payments to certain executives.

     Predecessor

     Lease and Purchase Option Agreements

     In January 2007, the Predecessor completed a transaction involving a lease and purchase option agreement for 11 facilities in Maine. The transaction was effective January 1, 2007. Under the agreement, the Predecessor leased 11 nursing and residential care facilities for 25 years with an annual lease payment of approximately $5 million. Additionally, the Predecessor paid approximately $16.5 million in cash in exchange for tangible operating assets and entered into a $53 million fixed price purchase option exercisable in 2026. The transaction was recorded as a capital lease resulting in $40.0 million of capital lease obligations and added $56.4 million of property and equipment.

     Acquisition of ElderCare Center

     Effective May 1, 2007, the Predecessor purchased a skilled nursing facility in Pennsylvania. The purchase price of $3.1 million was financed with cash. The results of operations of this acquisition was included from the acquisition date.

(4) Certain Significant Risks and Uncertainties

     Revenue Sources

     The Company receives revenues from Medicare, Medicaid, private insurance, self-pay residents, other third-party payors and long-term care facilities that utilize its rehabilitation therapy and other services. The Company’s inpatient services derives approximately 78% of its revenue from the Medicare and various state Medicaid programs.

     The sources and amounts of the Company’s revenues are determined by a number of factors, including licensed bed capacity and occupancy rates of its eldercare centers, the mix of patients and the rates of reimbursement among payors. Likewise, payment for ancillary medical services, including services provided by the Company’s rehabilitation therapy services business, vary based upon the type of payor and payment methodologies. Changes in the case mix of the patients as well as payor mix among Medicare, Medicaid and private pay can significantly affect the Company’s profitability.

     It is not possible to quantify fully the effect of legislative changes, the interpretation or administration of such legislation or other governmental initiatives on the Company’s business and the business of the customers served by the Company’s rehabilitation therapy business. The potential impact of healthcare reform, which would initiate significant reforms to the United States healthcare system, including potential material changes to the delivery of healthcare services

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

and the reimbursement paid for such services by the government or other third party payors, is uncertain at this time. Accordingly, there can be no assurance that the impact of any future healthcare legislation or regulation will not adversely affect the Company’s business. There can be no assurance that payments under governmental and private third-party payor programs will be timely, will remain at levels similar to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. The Company’s financial condition and results of operations will be affected by the reimbursement process, which in the healthcare industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled.

     Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in material compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving material allegations of potential wrongdoing. While no such regulatory inquiries have been made, noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties, and exclusion from the Medicare and Medicaid programs.

(5) Restricted Cash and Investments in Marketable Securities

     The current portion of restricted cash and investments in marketable securities principally represents an estimate of the level of outstanding self-insured losses the Company expects to pay in the succeeding year through its wholly owned captive insurance company. See note 15 — “Commitments and Contingencies — Loss Reserves For Certain Self-Insured Programs.” Restricted cash includes proceeds from the sale of three of the Company’s consolidated facilities and a parcel of land from one of the Company’s consolidated facilities totaling $5.2 million. The cash is restricted by the senior secured credit agreement and must be used either (i) to reinvest in assets of like-kind within 180 days of the date of transfer, (ii) to pay down the senior secured term loan, or (iii) to pay for certain permitted capital projects; provided that the aggregate value does not exceed $10.0 million over the term of the senior secured credit agreement and such transfers shall be made for cash in an amount not less than fair market value of the facility so transferred. The Company expects to use the restricted cash to pay for certain permitted capital projects.

     Restricted cash and equivalents and investments in marketable securities at December 31, 2009 consist of the following (in thousands):

										Unrealized losses
		Amortized				Unrealized				Less than				Greater than
		cost				gains				12 months				12 months				Fair value
Restricted cash and equivalents:
Cash		$	9,457			$	—			$	—			$	—			$	9,457
Money market funds			7,678				2				—				—				7,680
Restricted investments in marketable securities:
Mortgage/government backed securities			21,177				314				—				(98	)			21,393
Corporate bonds			16,506				470				—				—				16,976
Government bonds			43,433				2,073				—				(299	)			45,207
		$	98,251			$	2,859			$	—			$	(397	)			100,713
Less: Current portion of restricted investments																			(41,376	)
Long-term restricted investments																		$	59,337

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

     Restricted cash and equivalents and investments in marketable securities at December 31, 2008 consist of the following (in thousands):

										Unrealized losses
		Amortized				Unrealized				Less than 12				Greater than
		cost				gains				months				12 months				Fair value
Restricted cash and equivalents:
Cash		$	3,808			$	—			$	—			$	—			$	3,808
Money market funds			6,674				—				—				—				6,674
Restricted investments in marketable securities:
Mortgage/government backed securities			20,157				517				—				(20	)			20,654
Corporate bonds			23,449				226				(172	)			(35	)			23,468
Government bonds			45,698				1,139				—				—				46,837
		$	99,786			$	1,882			$	(172	)		$	(55	)			101,441
Less: Current portion of restricted investments																			(36,584	)
Long-term restricted investments																		$	64,857

     Maturities of restricted investments yielded proceeds of $363.2 million, $940.9 million, $23.0 million and $12.0 million for the Successor periods for the years ended December 31, 2009 and 2008, from July 14, 2007 through December 31, 2007, and the Predecessor period from January 1, 2007 through July 13, 2007, respectively.

     Sales of investments yielded proceeds of $49.5 million, $43.5 million, $10.2 million and $15.8 million for the Successor periods for the years ended December 31, 2009 and 2008, from July 14, 2007 through December 31, 2007, and the Predecessor period from January 1, 2007 through July 13, 2007, respectively. Associated gross realized gain and (loss) for the year ended December 31, 2009 were $0.3 million and $(0.3), respectively. Associated gross realized gain and (loss) for the year ended December 31, 2008 were $0.3 million and $(4.0), respectively. Associated gross realized gain and (loss) for the other presented periods were not significant.

     During the Successor period for the year ended December 31, 2009, the Company determined that the decline in the estimated value of one corporate bond, with an aggregate carrying value of $1.1 million prior to the impairment, was other-than-temporarily impaired. The Company recognized a non-cash, pre-tax impairment charge in investment income of $0.2 million in the year ended December 31, 2009 period.

     During the Successor period for the year ended December 31, 2008, the Company determined that the decline in the estimated value of four corporate bonds, with an aggregate carrying value of $8.2 million prior to the impairment, were other-than-temporarily impaired. The Company recognized a non-cash, pre-tax impairment charge in investment income of $3.9 million in the year ended December 31, 2008 period.

     During the Successor period from July 14, 2007 through December 31, 2007, the Company determined that the decline in the estimated value of a corporate bond, with an aggregate carrying value of $2.0 million prior to the impairment, was other-than-temporarily impaired. The Company recognized a non-cash, pre-tax impairment charge in investment income of $0.4 million in the July 14, 2007 through December 31, 2007 period.

     The majority of the Company’s investments are investment grade government and corporate debt securities that have maturities of five years or less, and the Company has both the ability and intent to hold the investments until maturity.

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

     Restricted investments in marketable securities held at December 31, 2009 mature as follows (in thousands):

		Amortized				Fair
		cost				value
Due in one year or less		$	14,254			$	14,630
Due after 1 year through 5 years			52,344				54,176
Due after 5 years through 10 years			10,356				10,246
Due after 10 years			4,162				4,524
		$	81,116			$	83,576

     Actual maturities may differ from stated maturities because borrowers may have the right to call or prepay certain obligations and may exercise that right with or without prepayment penalties.

     The Company has issued letters of credit totaling $69.2 million at December 31, 2009 to its third party administrators and the Company’s excess insurance carriers. Restricted cash of $4.3 million and restricted investments with an amortized cost of $81.1 million and a market value of $83.6 million are pledged as security for these letters of credit as of December 31, 2009.

(6) Property and Equipment

     Property and equipment at December 31, 2009 and 2008 consist of the following (in thousands):

		2009				2008
Land and improvements		$	255,185			$	234,522
Buildings and improvements			1,549,598				1,495,075
Equipment, furniture and fixtures			174,615				152,735
Construction in progress			5,153				7,489
Gross property and equipment			1,984,551				1,889,821
Less: accumulated depreciation			(197,068	)			(115,114	)
Net property and equipment		$	1,787,483			$	1,774,707

     Assets held under capital leases, which are principally carried in building and improvements above, were $258.3 million and $219.7 million at December 31, 2009 and 2008, respectively. Accumulated depreciation on assets held under capital leases was $20.2 million and $8.8 million at December 31, 2009 and 2008, respectively.

     Asset impairment charges of $9.8 million were recognized in the year ended December 31, 2009 associated with the write-down of seven underperforming properties and one closed and held for sale center in which the carrying value was in excess of the sale price. Asset impairment charges of $6.8 million were recognized in the year ended December 31, 2008 associated with the write-down of three underperforming properties. See note 17 — “Asset Impairment Charges — Long-Lived Assets with a Definite Useful Life.”

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

(7) Other Long-Term Assets

     Other long-term assets at December 31, 2009 and 2008 consist of the following (in thousands):

		2009				2008
Insurance claims recoverable		$	13,932			$	15,747
Deferred financing fees, net			8,779				17,129
Deposits and funds held in escrow			27,129				28,743
Investments in unconsolidated affiliates			9,601				10,738
Cost report receivables			2,888				4,415
Other, net			2,785				3,472
Other long-term assets		$	65,114			$	80,244

     Deferred financing fees are recorded net of accumulated amortization of $4.4 million and $30.1 million at December 31, 2009 and 2008, respectively. Accumulated amortization of $38.2 was adjusted and $4.1 million in deferred financing fees were incurred in connection with the senior secured debt amendment dated September 25, 2009. See note 3 — “Significant Transactions and Events — Successor — Amendments to Debt Agreements.”

(8) Goodwill and Identifiable Intangible Assets

     The changes in the carrying value of goodwill are as follows (in thousands):

		Total
Balance at January 1, 2008		$	265,678
Adjustments to Merger allocation			(20,637	)
Goodwill impairment			(125,951	)
Balance at December 31, 2008		$	119,090
Goodwill			245,041
Accumulated impairment losses			(125,951	)
		$	119,090
Balance at December 31, 2009
Goodwill		$	245,041
Accumulated impairment losses			(125,951	)
		$	119,090

     The adjustment to GHC Merger allocation represents the fair value true up of certain property and equipment sold shortly after the date of acquisition and an adjustment of certain state net operating loss valuation allowances.

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

     Identifiable intangible assets consist of the following at December 31, 2009 and 2008 (in thousands):

						Weighted
						Average Life
		2009				(Years)
Customer relationship assets, net of accumulated amortization of $3,153		$	16,705				14
Favorable leases, net of accumulated amortization of $14,368			50,166				15
Indentifiable intangible assets, net		$	66,871				15

						Weighted
						Average Life
		2008				(Years)
Customer relationship assets, net of accumulated amortization of $1,873		$	17,985				15
Favorable leases, net of accumulated amortization of $10,024			69,714				15
Indentifiable intangible assets, net		$	87,699				15

     Acquisition-related identified intangible assets consist of customer relationship assets and favorable lease contracts. Customer relationship assets are being amortized on a straight-line basis over the expected period of benefit. Favorable lease contracts are amortized on a straight-line basis over the lease terms.

     Amortization expense related to identifiable intangible assets in the Successor periods for the years ended December 31, 2009 and 2008 and from July 14, 2007 through December 31, 2007, the Predecessor period of January 1, 2007 through July 13, 2007 was $7.3 million, $8.5 million, $4.7 million, and $0.7 million, respectively.

     In 2009, there were adjustments made to favorable lease contracts:

	•		Two favorable operating leases were amended and determined to be capital leases under the revised terms. A balance of $5.9 million in favorable leases was reclassified to the capital lease building asset; and
	•		An asset impairment of $7.6 million was recorded for three underperforming favorable operating leases.

     Based upon amounts recorded at December 31, 2009, total estimated amortization expense of identifiable intangible assets will be $6.7 million in 2010 through 2012, $6.3 million in 2013, and $6.0 million in 2014.

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

(9) Long-Term Debt

     Long-term debt at December 31, 2009 and 2008 consists of the following (in thousands):

		2009				2008
Senior secured term loan		$	1,295,563			$	1,298,084
Delayed draw term loan			—				11,500
Mezzanine term loan			375,000				375,000
Mortgages and other secured debt (recourse)			—				5,266
Capital lease obligations			163,731				135,423
Mortgages and other secured debt (non recourse)			39,875				27,696
Unamortized debt premium on mortgages and other secured debt (non recourse)			1,240				578
			1,875,409				1,853,547
Less:
Current installments of long-term debt			(10,432	)			(12,384	)
Long-term debt		$	1,864,977			$	1,841,163

     In connection with the completion of the Merger on July 13, 2007, the Company entered into a senior secured credit facility and a mezzanine term loan. The senior credit facility and the mezzanine term loan required the Company to enter into certain interest rate hedge agreements to mitigate the risk of rising variable rates of interest. See note 16 — “Fair Value of Financial Instruments — Derivative Instruments and Hedging Activities.”

     Senior Secured Credit Facility

     The senior secured credit facility consists of the following subfacilities, as amended: (i) a $1.3 billion senior secured term loan, and (ii) a $75 million revolving credit facility. The Company pays interest monthly on the outstanding loans under the senior secured credit facility.

     Borrowings bear interest at a rate equal to, at the Company’s option, either a base rate or at the one-month London Interbank Offered Rate (LIBOR) plus an applicable margin. The base rate is determined by reference to the highest of (i) a lender-defined prime rate, (ii) the federal funds rate plus 3.0%, and (iii) the sum of LIBOR, not to be less than 2.5%, plus an applicable margin. The applicable margin with respect to LIBOR borrowings is 3.07% at December 31, 2009. This applicable margin increases every anniversary beginning September 25, 2010 through year five with the rate equal to LIBOR plus 5.75%. LIBOR borrowings under the senior secured credit facility bore interest of approximately 3.30% at December 31, 2009.

     Principal amounts outstanding under each of the two subfacilities are due and payable in full at maturity, September 25, 2014.

     The senior secured term loan, as amended, can be voluntarily prepaid on or before September 25, 2013 but will be subject to a prepayment penalty. Any prepayment that occurs after September 25, 2013 is not subject to a prepayment penalty. The senior secured term loan is subject to partial mandatory prepayment under certain circumstances, including the Company’s receipt of insurance proceeds received following damage to properties or the receipt of certain proceeds upon the sale of real property. In these circumstances, the proceeds received must be used to prepay the senior secured term loan.

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

     The senior secured credit agreement requires funds be placed in escrow for property tax and property insurance obligations. In addition, the senior secured credit agreement requires that cash be placed in escrow on a monthly basis (approximately $7.5 million annually) to fund routine maintenance and the replacement of property and equipment. The lender releases funds from this escrow when the Company presents evidence that operating funds have been expended for such routine maintenance and replacement activities. At December 31, 2009, $0.6 million is held in escrow for routine maintenance, which is included in prepaid expenses and other current assets.

     All obligations under the senior secured credit facility are secured by a security interest in substantially all of the assets of the Company.

     The senior secured credit agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability to: incur additional indebtedness; provide guarantees; create liens on assets; engage in mergers, acquisitions or consolidations; sell assets; make distributions; make investments, loans or advances; repay indebtedness, except as scheduled or at maturity; engage in certain transactions with affiliates; amend material agreements governing the Company’s outstanding indebtedness; and fundamentally change the Company’s business. The senior secured credit facility agreement requires the Company to meet defined financial covenants, including a maximum consolidated leverage ratio, a minimum consolidated fixed charge coverage ratio, a minimum consolidated project yield and certain customary affirmative covenants, such as financial and other reporting, and certain events of default. At December 31, 2009, the Company is in compliance with all of these covenants.

     Senior secured term loan. The senior secured term loan of $1.3 billion was fully drawn on July 13, 2007 to fund the Merger. Through the year ended December 31, 2009, the Company has prepaid $1.9 million of the senior secured term loan from proceeds upon the sale of real property. In connection with the amendment dated September 25, 2009, the Company paid down $40.0 million of the senior secured term loan balance.

     Delayed draw term loan. The $37.5 million delayed draw term loan, as amended, was established to provide the Company a source of financing to make certain qualifying capital improvements or acquisitions. Amounts repaid under the delayed draw term loan may not be reborrowed. As of December 31, 2009, the Company had drawn the full $37.5 million of outstanding borrowings. In connection with the amendment dated September 25, 2009, this amount is now included in the senior secured term loan balance as of December 31, 2009 with no further borrowing capacity.

     Revolving credit facility. The $75 million revolving credit facility, as amended, was established to provide the Company a source of financing to fund general working capital requirements. Borrowings under the revolving credit facility may be in the form of revolving loans or swing line loans. Aggregate outstanding swing line loans have a sub-limit of $10 million. The revolving credit facility also provides a sub-limit of $35 million for letters of credit. Borrowing levels under the revolving credit facility are limited to a borrowing base that is computed based upon the level of Company eligible accounts receivable, as defined. In addition to paying interest on the outstanding principal borrowed under the revolving credit facility, the Company is required to pay a commitment fee to the lenders for any unutilized commitments. The commitment fee rate is 0.5% per annum when the unused commitment is greater than $37.5 million and 0.75% per annum when the unused commitment is less than $37.5 million. As of December 31, 2009, the Company had no outstanding borrowings under the revolving credit facility and had $27.3 million of undrawn letters of credit and other encumbrances, leaving the Company with approximately $47.0 million of borrowing capacity under the revolving credit facility. The revolving credit facility expires on September 25, 2014.

Mezzanine Term Loan

     The mezzanine term loan of $375 million was outstanding at December 31, 2009. Borrowings bear interest at a rate equal to LIBOR plus 7.5%. Borrowings under the mezzanine term loan bore interest at approximately 7.73% at December 31, 2009. The principal amount is due and payable in full at maturity, September 25, 2014.

     The mezzanine term loan agreement contains both voluntary and mandatory prepayment restrictions subject to prepayment penalties set forth in the agreement. Mandatory termination fees equal to 1% of the $375 million borrowing plus a monthly rate that increases annually from 0.088% in the initial year of the loan to 0.116% in the final year of the loan. During 2009, the Company accrued $13.6 million for termination fees payable when the loan matures or is prepaid. Of that amount, $5.6 million, $5.5 million and $2.5 million pertain to the Successor periods for the years ended

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

December 31, 2009 and 2008, and from July 14, 2007 through December 31, 2007, respectively. See note 1 — “General Information — Adjustments and Reclassifications.” The Company must maintain a debt service reserve held by the lender without interest equal to $4.1 million. The balance is included in prepaid expenses and other current assets.

     All obligations under the mezzanine term loan are secured by a security interest in substantially all of the assets of the Company, subject to subordination to the senior secured credit facility.

     The mezzanine term loan contains covenants similar to, and no more restrictive than, those required under the senior secured credit agreement. At December 31, 2009, the Company was in compliance with all of these covenants.

     Other Debt

     Mortgages and other secured debt (recourse). At December 31, 2008, the Company had $5.3 million of other secured debt consisting principally of revenue bonds and secured bank loans, including loans insured by the Department of Housing and Urban Development. These loans were repaid in full by December 31, 2009.

     Capital lease obligations. The capital lease obligations represent the present value of minimum lease payments under such capital lease arrangements and bear imputed interest at rates ranging from 7.0% to 21.0% at December 31, 2009, and mature at dates ranging primarily from 2012 to 2031.

     Mortgages and other secured debt (non-recourse). Loans are carried by certain of the Company’s consolidated joint ventures. The loans consist principally of revenue bonds and secured bank loans. Loans are secured by the underlying real and personal property of individual facilities and have fixed or variable rates of interest ranging from 4.5% to 19.6% at December 31, 2009, with maturity dates ranging from 2010 to 2034. Loans are labeled “non-recourse” because neither the Company nor a wholly owned subsidiary is obligated to perform under the respective loan agreements.

     The maturity of total debt, excluding capital lease obligations, of $1,711.7 million at December 31, 2009 is as follows: $7.2 million in fiscal 2010, $0.8 million in fiscal 2011, $0.9 million in fiscal 2012, $0.9 million in fiscal 2013, $1,683.9 million in fiscal 2014 and $18.0 million thereafter.

(10) Leases and Lease Commitments

     The Company leases certain facilities under capital and operating leases. Future minimum payments for the next five years and thereafter under such leases at December 31, 2009 are as follows (in thousands):

Year ending December 31,		Capital Leases				Operating Leases
2010		$	18,175			$	19,344
2011			18,614				19,417
2012			18,386				18,399
2013			17,782				14,102
2014			82,601				12,890
Thereafter			154,932				27,476
Total future minimum lease payments			310,490			$	111,628
Less amount representing interest			(146,759	)
Present value of net minimum lease payments			163,731
Less current portion			(3,239	)
Long-term capital lease obligation		$	160,492

     The Company holds fixed price purchase options to acquire the land and buildings of 18 facilities for $119.5 million with expirations ranging from 2014 to 2025. Seven of these options are deemed to be bargain purchases and,

FC-GEN Acquisition Holding, LLC and Subsidiaries
Notes to Consolidated Financial Statements

consequently, these leases have been classified as capital leases contributing $75.3 million in capital lease obligations of the total $163.7 million at December 31, 2009. The Company also classifies 17 other center leases as capital leases contributing $88.4 million to the capital lease obligation at December 31, 2009.

     The Company and subsidiaries of a real estate investment trust are party to a master lease involving eleven facilities. The master lease does not impact the individual terms and conditions of the six separate operating leases and the five separate capital leases, but establishes cross default and cure provisions if one or more of the eleven individual facilities have an event of default. In addition to facility / tenant level financial, reporting and other covenants contained in the individual operating and capital leases, the master lease establishes certain Company level financial, reporting and other covenants. Pursuant to the master lease, the Company posted $10.8 million of letters of credit as security, principally representing 12 months rent under the six individual operating leases and five individual capital leases. See note 3 — “Significant Transactions and Events — Successor — Lease Transactions.”

     Deferred lease balances carried on the consolidated balance sheets represent future differences between accrual basis and cash basis lease costs. Differences between lease expense on an accrual basis and the amount of cash disbursed for lease obligations is caused by unfavorable or favorable lease balances established in connection with the Merger are amortized on a straight-line basis over the lease term and lease balances established to account for operating lease costs on a straight-line basis.

     At December 31, 2009 and 2008, the Company had $50.2 million and $69.7 million, respectively, of favorable leases net of accumulated amortization, included in other identifiable intangible assets and $2.0 million and $4.2 million, respectively, of unfavorable leases net of accumulated amortization included in other long-term liabilities on the consolidated balance sheet. The favorable leases will be amortized as an increase to lease expense over the remaining lease terms, which have a weighted average term of 15 years. The unfavorable leases will be amortized as a decrease to lease expense over the remaining lease terms, which have a weighted average term of 5 years.

     Impairment on three favorable lease balances of $7.6 million were recognized in 2009 and an impairment, on a favorable lease balance, of $4.0 million was recognized in 2008 associated with the write-down of an underperforming properties. See note 17 — “Asset Impairment Charges — Long-Lived Assets with a Definite Useful Life.”

     The net balance of the straight-line lease adjustment at December 31, 2009 and 2008 of $1.9 million and $1.5 million, respectively, is included in other long-term liabilities on the consolidated balance sheets.

(11) Income Taxes

     Income Tax Provision (Benefit)

     Total income tax expense (benefit) was as follows (in thousands):

		Successor													Predecessor
										Period from July					Period from
		Year ended				Year ended				14, 2007 through					January 1, 2007
		December 31,				December 31,				December 31,					through July 13,
		2009				2008				2007					2007
Continuing operations		$	17,105			$	(37,618	)		$	(25,425	)			$	6,763
Discontinued operations			(764	)			444				720					(119	)
Noncontrolling interests			(935	)			(937	)			(195	)				(334	)
Shareholders’/members’ equity			(3,222	)			1,401				(2,129	)				(3,307	)
Total		$	12,184			$	(36,710	)		$	(27,029	)			$	3,003