LifeCare Holdings, Inc. Announces Year-e...(n in face of oursenior subordinated note...),Health

Excluding the impairment charge and the compensation and benefits accrual for 2007, and the impairment charge, gain on early extinguishment of debt, and the insurance recovery for 2006, expenses increased by $14.9 million from the same period in prior year. Rent expense increased by $3.6 million during the 2007 period in connection with the increases in bed capacity during 2007. Net interest expense increased by $3.1 million during the 2007 period as a result of an increase in the LIBOR rates during 2007 and in the margin spread as the result of the amendments to our senior secured credit facility discussed in the Liquidity and Capital Resources section below. The remaining $8.2 million increase in expenses was primarily attributable to an increase in salaries, wages and benefits of $8.3 million, and an increase in outside services, contract labor and other operating expenses of $3.1 million. These increases resulted from inflation and the increases in bed capacity during 2007. These increases were offset by a decrease in the provision for doubtful accounts of $2.9 million and a decrease in depreciation and amortization expense of $0.6 million. The provision for doubtful accounts during 2006 included an additional provision of $1.7 million for the impact of a conversion to a new patient accounting system during 2006.

Credit Agreement EBITDA

For the year-ended December 31, 2007, Credit Agreement EBITDA, was $47.5 million, including a $6 million cure amount discussed below, a decrease of $10.3 million, or 17.8% from the prior year period. The decrease in Credit Agreement EBITDA, on a dollar and percentage of net patient service revenue basis, was primarily due to the reduction in revenues associated with
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