SOURCE: Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc.

October 27, 2009 16:30 ET

Sun Healthcare Group, Inc. Reports Third-Quarter Earnings and Normalized EPS of $0.25

IRVINE, CA--(Marketwire - October 27, 2009) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced its operating results for the third quarter ended Sept. 30, 2009.

Third-quarter Results:

On a normalized basis, comparing the quarter ended Sept. 30, 2009, to the same period in 2008 (unless otherwise stated):

 --  consolidated revenues rose 3.3 percent to $470.9 million;
     --  rates continued to drive revenue growth;
         --  acuity strategy contributed to rate growth;
 --  consolidated EBITDAR increased 5.3 percent to $60.4 million;
     --  EBITDAR margin improved 20 basis points to 12.8 percent;
 --  consolidated EBITDA increased 8.3 percent to $42.2 million;
     --  EBITDA margin improved 50 basis points to 9.0 percent;
 --  diluted earnings per share from continuing operations reported at
     $0.25, up 19 percent;
 --  operating cash flows up 36 percent to $39.8 million;
 --  the sole normalizing item in the third quarter was a non-recurring
     pretax expense of $0.9 million for restructuring costs, which
     consisted principally of employee severance costs;
     --  infrastructure restructuring should reduce overhead by
         approximately $10.0 million on an annualized basis; and
 --  results included $1.0 million of non-recurring project costs
     associated with the implementation of the new clinical/billing
     platform and labor management system.

Commenting on the Company's third-quarter results, Richard K. Matros, Sun's chairman and chief executive officer, remarked, "It appears that we have weathered the worst of the economic downturn relative to overall occupancy and mix. On a sequential basis, our occupancy improved 20 basis points. Although occupancy was down 80 basis points compared to third quarter of 2008, it is an improvement over the decrease of 130 basis points that we experienced in the second quarter. Our skilled mix was down 20 basis points compared to third quarter of 2008, as compared to the second quarter's year-over-year decline of 100 basis points. As a percent of revenue, skilled mix increased 90 basis points over the third quarter of 2008. September's occupancy edged up to 88.2 percent and has held in October. The Company's operating cash flows for the quarter were strong and our cost controls continue to be solid."

Segment Updates

The year-over-year revenue growth in Sun's inpatient services business (SunBridge) for the quarter of $16.9 million or 4.2 percent was principally driven by skilled rate growth and census expansion in the hospice business (SolAmor). SunBridge's nursing center Medicare rate continued to demonstrate strong acuity growth, as evidenced by the Rehab RUG utilization of 88.9 percent and REX utilization of 42 percent, resulting in an 8.1 percent increase in rates. In addition, SunBridge experienced a 5.4 percent increase in managed care rates. SolAmor's revenues grew 75 percent from $4.1 million to $7.2 million, principally due to growth in census (driven in part by a September 2008 acquisition). SolAmor had its best ever quarter, contributing $1.6 million in EBITDA and a 22.2 percent EBITDA margin. The Oct. 1, 2009 acquisition of Allegiance Hospice will increase the potential of the hospice business line. Overall, inpatient services EBITDA grew $4.5 million year over year along with a 60 basis point improvement in margin, which increased to 12.6 percent for the quarter.

SunDance, Sun's rehabilitation therapy services business, experienced revenue growth of $6.7 million or 17.4 percent in the quarter and EBITDA margin expansion of 110 basis points, which produced a 6.1 percent margin for the quarter. The revenue growth and margin expansion were favorably impacted by 15 percent growth in revenue per contract.

The slow economy continues to impact the demand for temporary medical staffing across the industry. Accordingly, revenues from CareerStaff, Sun's medical staffing services business, were down compared to revenues in the third quarter of 2008. Despite the decline in revenues, CareerStaff experienced EBITDA margin growth of 40 basis points to 9.3 percent for the quarter.

Mr. Matros further stated, "Acuity in our inpatient services business continued to be strong, particularly in our Rehab Recovery Suites ® (RRS) centers, where skilled mix increased 40 basis points to 21.5 percent over the third quarter of 2008. Quality results as measured by both internal and external metrics continued to reflect our commitment to quality of care, and we expect that 2009 will be our best year in terms of these metrics. SolAmor continued its strong performance and will benefit from the recent acquisition of Allegiance Hospice. Through nine months on $19.2 million in revenue, it contributed $3.5 million in EBITDA. CareerStaff, as previously noted, is our hardest-hit business segment and, while revenues have decreased, our management team once again increased margins. SunDance recorded another good quarter and continues to show growth in key metrics."

Conference Call

As previously announced, investors and the general public are invited to listen to a conference call with Sun's senior management on Wednesday, Oct. 28, 2009, at 10 a.m. Pacific / 1 p.m. Eastern, to discuss the Company's earnings for the third quarter of 2009.

To listen to the conference call, dial (800) 768-6490 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on Oct. 28, 2009, until midnight Eastern on Nov. 27, 2009, by calling (888) 203-1112 and using access code 5432115.

About Sun Healthcare Group, Inc.

The subsidiaries of Sun Healthcare Group, Inc. (NASDAQ: SUNH) provide nursing, rehabilitative and related specialty healthcare services principally to the senior population in the United States. Sun's core business is providing inpatient services, primarily through 184 skilled nursing centers, 14 assisted and independent living centers and eight mental health centers. On a consolidated basis, Sun had annual revenues in 2008 of more than $1.8 billion and approximately 30,000 employees in 46 states. At Sept. 30, 2009, SunBridge centers had 23,289 licensed beds located in 25 states, of which 22,481 were available for occupancy. The company also provides rehabilitation therapy services to affiliated and non-affiliated centers through the SunDance subsidiary, medical staffing services through the CareerStaff Unlimited subsidiary and hospice services through the SolAmor subsidiary.

Forward-Looking Statement

Statements made in this release that are not historical facts are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate," "believe," "plan," "estimate," "expect," "hope," "intend," "may" and similar expressions. Factors that could cause actual results to differ are identified in the public filings made by the company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; our ability to maintain the occupancy rates and payor mix at our healthcare centers; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; the significant amount of our indebtedness, covenants in our debt agreements that may restrict our activities and our ability to make acquisitions, incur more indebtedness and refinance indebtedness on favorable terms; the impact of the current economic downturn on our business; increasing labor costs and the shortage of qualified healthcare personnel; and our ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission, including our Annual Report on Forms 10-K and 10-K/A and Quarterly Reports on Form 10-Q and 10-Q/A, copies of which are available on Sun's web site, www.sunh.com.

The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. We caution investors that any forward-looking statements made by Sun are not guarantees of future performance. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

EBITDA and EBITDAR as used in this press release and in the accompanying tables, which are non-GAAP financial measures, are each reconciled to net income (loss) in the accompanying tables. In addition, the normalizing adjustments to EBITDA, EBITDAR, pre-tax income and income from continuing operations discussed in this press release and shown in the accompanying tables are non-GAAP adjustments.

Any documents filed by Sun with the SEC may be obtained free of charge at the SEC's web site at www.sec.gov. In addition, investors and stockholders of Sun may obtain free copies of the documents filed with the SEC by contacting Sun's investor relations department at (505) 468-2341 (TDD users, please call (505) 468-4458) or by sending a written request to Investor Relations, Sun Healthcare Group, Inc. 101 Sun Avenue N.E., Albuquerque, N.M. 87109. You may also read and copy any reports, statements and other information filed by Sun with the SEC at the SEC public reference room at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 or visit the SEC's web site for further information.


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                       KEY INCOME STATEMENT FIGURES
                             CONSOLIDATED
                  (in thousands, except per share data)


                                                 For the        For the
                                              Three Months   Three Months
                                                  Ended          Ended
                                              September 30,  September 30,
                                                  2009           2008
                                              -------------  -------------

Revenue                                       $     470,893  $     455,757

Depreciation and amortization                        11,460         10,165

Interest expense, net                                12,231         13,070

Pre-tax income                                       17,609         15,707

Income tax expense                                    7,220          6,286

Income from continuing operations                    10,389          9,421

Loss from discontinued operations                      (731)          (817)
                                              -------------  -------------

Net income                                    $       9,658  $       8,604
                                              =============  =============

                                              -------------  -------------
Diluted earnings per share                    $        0.22  $        0.19
                                              =============  =============

                                              -------------  -------------
EBITDAR                                       $      60,366  $      57,351
Margin - EBITDAR                                       12.8%          12.6%

EBITDAR normalized                            $      60,366  $      57,351
Margin - EBITDAR normalized                            12.8%          12.6%
                                              -------------  -------------

                                              -------------  -------------
EBITDA                                        $      42,172  $      38,942
Margin - EBITDA                                         9.0%           8.5%

EBITDA normalized                             $      42,172  $      38,942
Margin - EBITDA normalized                              9.0%           8.5%
                                              -------------  -------------

                                              -------------  -------------
Pre-tax income continuing operations -
 normalized                                   $      18,481  $      15,707

Income tax expense - normalized               $       7,578  $       6,286

Income from continuing operations normalized  $      10,903  $       9,421

Diluted earnings per share - normalized       $        0.25  $        0.21

Net income - normalized                       $      10,172  $       8,604

Diluted earnings per share - normalized       $        0.23  $        0.19
                                              -------------  -------------



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                       KEY INCOME STATEMENT FIGURES
                             CONSOLIDATED
                  (in thousands, except per share data)


                                                 For the        For the
                                               Nine Months    Nine Months
                                                  Ended          Ended
                                              September 30,  September 30,
                                                  2009           2008
                                              -------------  -------------


Revenue                                       $   1,407,735  $   1,356,706

Depreciation and amortization                        33,336         29,553

Interest expense, net                                37,422         41,144

Pre-tax income                                       55,597         50,218

Income tax expense                                   22,795         20,119

Income from continuing operations                    32,802         30,099

Loss from discontinued operations                    (2,806)        (3,233)
                                              -------------  -------------

Net income                                    $      29,996  $      26,866
                                              =============  =============

                                              -------------  -------------
Diluted earnings per share                    $        0.68  $        0.61
                                              =============  =============

                                              -------------  -------------
EBITDAR                                       $     182,042  $     176,163
Margin - EBITDAR                                       12.9%          13.0%

EBITDAR normalized                            $     186,342  $     174,982
Margin - EBITDAR normalized                            13.2%          12.9%
                                              -------------  -------------

                                              -------------  -------------
EBITDA                                        $     127,269  $     120,838
Margin - EBITDA                                         9.0%           8.9%

EBITDA normalized                             $     131,569  $     119,657
Margin - EBITDA normalized                              9.3%           8.8%
                                              -------------  -------------

                                              -------------  -------------
Pre-tax income continuing operations -
 normalized                                   $      60,769  $      49,037

Income tax expense - normalized               $      24,916  $      19,647

Income from continuing operations normalized  $      35,853  $      29,390

Diluted earnings per share - normalized       $        0.82  $        0.67

Net income - normalized                       $      33,395  $      25,935

Diluted earnings per share - normalized       $        0.76  $        0.59
                                              -------------  -------------




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED BALANCE SHEETS
                    (in thousands, except share data)


                                              September 30,  December 31,
                                                  2009           2008
                                              -------------  -------------
                                               (unaudited)    (unaudited)
                 ASSETS

Current assets:
   Cash and cash equivalents                  $     117,405  $      92,153
   Restricted cash                                   25,855         34,676
   Accounts receivable, net                         210,394        205,620
   Prepaid expenses and other assets                 23,385         21,456
   Assets held for sale                                   -          3,654
   Deferred tax assets                               58,995         57,261
                                              -------------  -------------
      Total current assets                          436,034        414,820

Property and equipment, net                         615,825        603,645
Intangible assets, net                               49,299         54,388
Goodwill                                            327,020        326,808
Restricted cash, non-current                          3,313          3,303
Deferred tax assets                                 115,054        134,807
Other assets                                          5,042          5,563
                                              -------------  -------------
      Total assets                            $   1,551,587  $   1,543,334
                                              =============  =============


    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                           $      48,005  $      62,000
   Accrued compensation and benefits                 65,592         60,660
   Accrued self-insurance obligations, current       46,847         45,293
   Other accrued liabilities                         65,141         56,857
   Current portion of long-term debt and
    capital lease obligations                        27,781         17,865
                                              -------------  -------------

   Total current liabilities                        253,366        242,675

Accrued self-insurance obligations, net of
 current portion                                    114,258        114,557
Long-term debt and capital lease obligations,
 net of current portion                             674,795        707,976
Unfavorable lease obligations, net                   13,377         15,514
Other long-term liabilities                          57,651         58,903
                                              -------------  -------------
   Total liabilities                              1,113,447      1,139,625


Stockholders' equity:
   Preferred stock of $.01 par value,
    authorized 10,000,000 shares, no shares
    were issued and outstanding as of
    September 30, 2009 and December 31, 2008              -              -
   Common stock of $.01 par value, authorized
    125,000,000 shares, 43,738,565 and
    43,544,765 shares issued and outstanding
    as of September 30, 2009 and December 31,
    2008, respectively                                  437            435
   Additional paid-in capital                       654,280        650,543
   Accumulated deficit                             (212,686)      (242,683)
   Accumulated other comprehensive loss, net         (3,891)        (4,586)
                                              -------------  -------------
                                                    438,140        403,709
                                              -------------  -------------
      Total liabilities and stockholders'
       equity                                 $   1,551,587  $   1,543,334
                                              =============  =============



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                               CONSOLIDATED
                            INCOME STATEMENTS
                  (in thousands, except per share data)


                                                 For the        For the
                                              Three Months   Three Months
                                                  Ended          Ended
                                              September 30,  September 30,
                                                  2009           2008
                                              -------------  -------------
                                               (unaudited)    (unaudited)

Total net revenues                            $     470,893  $     455,757
                                              -------------  -------------
Costs and expenses:
   Operating salaries and benefits                  265,929        259,349
   Self-insurance for workers' compensation
    and general and professional liability
    insurance                                        14,165         14,527
   Operating administrative costs                    12,462         12,792
   Other operating costs                             97,067         94,599
   Center rent expense                               18,194         18,409
   General and administrative expenses               15,586         13,832
   Depreciation and amortization                     11,460         10,165
   Provision for losses on accounts receivable        5,318          3,307
   Interest, net of interest income of $106
    and $340, respectively                           12,231         13,070
   Restructuring costs                                  872              -
                                              -------------  -------------
Total costs and expenses                            453,284        440,050
                                              -------------  -------------

Income before income taxes and discontinued
 operations                                          17,609         15,707
Income tax expense                                    7,220          6,286
                                              -------------  -------------
Income from continuing operations                    10,389          9,421
                                              -------------  -------------

Discontinued operations:
   Loss from discontinued operations, net
    of related taxes                                   (712)          (163)
   Loss on disposal of discontinued
    operations, net of related taxes                    (19)          (654)
                                              -------------  -------------
Loss from discontinued operations, net                 (731)          (817)
                                              -------------  -------------

Net income                                    $       9,658  $       8,604
                                              =============  =============


Basic income per common and common equivalent
 share:
   Income from continuing operations          $        0.24  $        0.22
   Loss from discontinued operations, net             (0.02)         (0.02)
                                              -------------  -------------
Net income                                    $        0.22  $        0.20
                                              =============  =============

Diluted income per common and common
 equivalent share:
   Income from continuing operations          $        0.24  $        0.21
   Loss from discontinued operations, net             (0.02)         (0.02)
                                              -------------  -------------
Net Income                                    $        0.22  $        0.19
                                              =============  =============

Weighted average number of common and
 common equivalent shares outstanding:
   Basic                                             43,923         43,468
   Diluted                                           44,015         44,478



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                               CONSOLIDATED
                            INCOME STATEMENTS
                  (in thousands, except per share data)


                                                 For the        For the
                                               Nine Months    Nine Months
                                                  Ended          Ended
                                              September 30,  September 30,
                                                  2009           2008
                                              -------------  -------------
                                               (unaudited)    (unaudited)

Total net revenues                            $   1,407,735  $   1,356,706
                                              -------------  -------------
Costs and expenses:
   Operating salaries and benefits                  790,804        766,223
   Self-insurance for workers' compensation
    and general and professional liability
    insurance                                        45,626         40,985
   Operating administrative costs                    38,231         37,671
   Other operating costs                            287,376        279,644
   Center rent expense                               54,773         55,325
   General and administrative expenses               48,057         46,529
   Depreciation and amortization                     33,336         29,553
   Provision for losses on accounts receivable       15,599          9,491
   Interest, net of interest income of $310
    and $1,454, respectively                         37,422         41,144
   Loss (gain) on sale of assets, net                    42            (77)
   Restructuring costs                                  872              -
                                              -------------  -------------
Total costs and expenses                          1,352,138      1,306,488
                                              -------------  -------------

Income before income taxes and discontinued
 operations                                          55,597         50,218
Income tax expense                                   22,795         20,119
                                              -------------  -------------
Income from continuing operations                    32,802         30,099
                                              -------------  -------------

Discontinued operations:
   Loss from discontinued operations, net
    of related taxes                                 (2,472)          (710)
   Loss on disposal of discontinued
    operations, net of related taxes                   (334)        (2,523)
                                              -------------  -------------
Loss from discontinued operations, net               (2,806)        (3,233)
                                              -------------  -------------

Net income                                    $      29,996  $      26,866
                                              =============  =============


Basic income per common and common equivalent
 share:
   Income from continuing operations          $        0.75  $        0.70
   Loss from discontinued operations, net             (0.07)         (0.08)
                                              -------------  -------------
Net income                                    $        0.68  $        0.62
                                              =============  =============

Diluted income per common and common
 equivalent share:
  Income from continuing operations           $        0.75  $        0.68
  Loss from discontinued operations, net              (0.07)         (0.07)
                                              -------------  -------------
Net Income                                    $        0.68  $        0.61
                                              =============  =============

Weighted average number of common and
 common equivalent shares outstanding:
   Basic                                             43,807         43,240
   Diluted                                           43,926         44,086




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                    For the      For the
                                                     Three        Three
                                                    Months       Months
                                                     Ended        Ended
                                                   September    September
                                                    30, 2009     30, 2008
                                                  -----------  -----------
                                                  (unaudited)  (unaudited)

Cash flows from operating activities:
   Net income                                     $     9,658  $     8,604
   Adjustments to reconcile net income to net
    cash provided by operating activities,
    including discontinued operations:
       Depreciation and amortization                   11,460       10,202
       Amortization of favorable and unfavorable
        lease intangibles                                (474)        (452)
       Provision for losses on accounts receivable      5,318        3,460
       Loss on sale of assets, including
        discontinued operations, net                       31          539
       Stock-based compensation expense                 1,476        1,405
       Deferred taxes                                   5,500        5,276
       Other                                                -          (68)
   Changes in operating assets and liabilities,
    net of acquisitions:
      Accounts receivable                               1,079        1,751
      Restricted cash                                    (710)       1,379
      Prepaid expenses and other assets                   382         (379)
      Accounts payable                                 (6,762)      (3,983)
      Accrued compensation and benefits                 4,561        2,522
      Accrued self-insurance obligations                    4       (3,171)
      Income taxes payable                                  -         (615)
      Other accrued liabilities                         9,355        4,296
      Other long-term liabilities                      (1,004)      (1,404)
                                                  -----------  -----------
         Net cash provided by operating
          activities                                   39,874       29,362
                                                  -----------  -----------

Cash flows from investing activities:
   Capital expenditures                               (16,456)     (12,393)
   Purchase of leased real estate                           -       (8,229)
   Proceeds from sale of assets held for sale               -        9,840
   Acquisitions, net of cash acquired                       -       (7,060)
   Insurance proceeds received for damaged
    property                                                -          553
                                                  -----------  -----------
      Net cash used for investing activities          (16,456)     (17,289)
                                                  -----------  -----------

Cash flows from financing activities:
   Borrowings of long-term debt                        20,822            -
   Principal repayments of long-term debt and
    capital lease obligations                         (22,562)      (2,221)
   Distribution to non-controlling interest                 -         (130)
   Proceeds from issuance of common stock                  55        2,342
                                                  -----------  -----------
      Net cash used for financing activities           (1,685)          (9)
                                                  -----------  -----------

Net (decrease) increase in cash and cash
 equivalents                                           21,733       12,064
Cash and cash equivalents at beginning of period       95,672       68,369
                                                  -----------  -----------
Cash and cash equivalents at end of period        $   117,405  $    80,433
                                                  ===========  ===========




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                   For the      For the
                                                 Nine Months  Nine Months
                                                    Ended        Ended
                                                  September    September
                                                   30, 2009     30, 2008
                                                 -----------  -----------
                                                 (unaudited)  (unaudited)

Cash flows from operating activities:
   Net income                                     $    29,996  $    26,866
   Adjustments to reconcile net income to net
    cash provided by operating activities,
    including discontinued operations:
      Depreciation and amortization                    33,336       29,802
      Amortization of favorable and unfavorable
       lease intangibles                               (1,350)      (1,443)
      Provision for losses on accounts receivable      15,599        9,971
      Loss on sale of assets, including
       discontinued operations, net                      607        2,255
      Impairment charge for discontinued operation         -        1,800
      Stock-based compensation expense                 4,385        3,738
      Deferred taxes                                  18,019       13,547
      Other                                                -           11
   Changes in operating assets and liabilities,
    net of acquisitions:
      Accounts receivable                            (20,588)     (17,801)
      Restricted cash                                  8,811        4,442
      Prepaid expenses and other assets                  144       (5,700)
      Accounts payable                               (11,825)      (7,113)
      Accrued compensation and benefits                4,927       (1,129)
      Accrued self-insurance obligations               1,255       (3,406)
      Income taxes payable                                 -          976
      Other accrued liabilities                        8,530          679
      Other long-term liabilities                        177        4,648
                                                 -----------  -----------
         Net cash provided by operating
          activities                                  92,023       62,143
                                                 -----------  -----------

Cash flows from investing activities:
   Capital expenditures                              (41,458)     (28,532)
   Purchase of leased real estate                     (3,275)      (8,956)
   Proceeds from sale of assets held for sale          2,174       13,797
   Acquisitions, net of cash acquired                      -       (7,373)
   Insurance proceeds received for damaged
    property                                               -          628
                                                 -----------  -----------
      Net cash used for investing activities         (42,559)     (30,436)
                                                 -----------  -----------

Cash flows from financing activities:
   Borrowings of long-term debt                       20,822       20,290
   Principal repayments of long-term debt and
    capital lease obligations                        (44,249)     (27,420)
   Payment to non-controlling interest                  (311)      (2,035)
   Distribution to non-controlling interest             (549)        (353)
   Proceeds from issuance of common stock                 75        2,412
                                                 -----------  -----------
      Net cash used for financing activities         (24,212)      (7,106)
                                                 -----------  -----------

Net increase in cash and cash equivalents             25,252       24,601
Cash and cash equivalents at beginning of period      92,153       55,832
                                                 -----------  -----------
Cash and cash equivalents at end of period       $   117,405  $    80,433
                                                 ===========  ===========




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

            RECONCILIATION OF NET INCOME TO EBITDA and EBITDAR
                            (in thousands)


                                                  For the        For the
                                               Three Months   Three Months
                                                   Ended          Ended
                                               September 30,  September 30,
                                                   2009           2008
                                              -------------- --------------
                                               (unaudited)    (unaudited)

Total net revenues                            $      470,893 $      455,757
                                              -------------- --------------

Net income                                    $        9,658 $        8,604
                                              -------------- --------------


   Income from continuing operations                  10,389          9,421

   Income tax expense                                  7,220          6,286

   Restructuring costs                                   872              -
                                              -------------- --------------

Net segment income                            $       18,481 $       15,707

   Interest, net                                      12,231         13,070

   Depreciation and amortization                      11,460         10,165
                                              -------------- --------------

EBITDA                                        $       42,172 $       38,942

   Center rent expense                                18,194         18,409
                                              -------------- --------------

EBITDAR                                       $       60,366 $       57,351
                                              ============== ==============


EBITDA is defined as earnings before income (loss) on discontinued
operations, income taxes, loss (gain) on sale of assets, net, restructuring
costs, interest, net, depreciation and amortization.  EBITDAR is defined as
EBITDA before facility rent expense.  EBITDA and EBITDAR are used by
management to evaluate financial performance and resource allocation for
each entity within the operating units and for the Company as a whole.
EBITDA and EBITDAR are commonly used as analytical indicators within the
healthcare industry and also serve as measures of leverage capacity and
debt service ability. EBITDA and EBITDAR should not be considered as
measures of financial performance under generally accepted accounting
principles.  As the items excluded from EBITDA and EBITDAR are significant
components in understanding and assessing financial performance, EBITDA and
EBITDAR should not be considered in isolation or as alternatives to net
income (loss), cash flows generated by or used in operating, investing or
financing activities or other financial statement data presented in the
consolidated financial statements as indicators of financial performance or
liquidity.  Because EBITDA and EBITDAR are not measurements determined in
accordance with U.S. generally accepted accounting principles and are thus
susceptible to varying calculations, EBITDA and EBITDAR as presented may
not be comparable to other similarly titled measures of other companies.



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

            RECONCILIATION OF NET INCOME TO EBITDA and EBITDAR
                              (in thousands)


                                                 For the        For the
                                               Nine Months    Nine Months
                                                  Ended          Ended
                                              September 30,  September 30,
                                                  2009           2008
                                              -------------- -------------
                                               (unaudited)    (unaudited)

Total net revenues                            $    1,407,735 $   1,356,706
                                              -------------- -------------

Net income                                    $       29,996 $      26,866
                                              -------------- -------------

   Income from continuing operations                  32,802        30,099

   Income tax expense                                 22,795        20,119

   Loss (gain) on sale of assets, net                     42           (77)

   Restructuring costs                                   872             -
                                              -------------- -------------

Net segment income                            $       56,511 $      50,141

   Interest, net                                      37,422        41,144

   Depreciation and amortization                      33,336        29,553
                                              -------------- -------------

EBITDA                                        $      127,269 $     120,838

   Center rent expense                                54,773        55,325
                                              -------------- -------------

EBITDAR                                       $      182,042 $     176,163
                                              ============== =============


EBITDA is defined as earnings before income (loss) on discontinued
operations, income taxes, loss (gain) on sale of assets, net,
restructuring costs, interest, net, depreciation and amortization
EBITDAR is defined as EBITDA before facility rent expense.  EBITDA and
EBITDAR are used by management to evaluate financial performance and
resource allocation for each entity within the operating units and for the
Company as a whole.  EBITDA and EBITDAR are commonly used as analytical
indicators within the healthcare industry and also serve as measures of
leverage capacity and debt service ability. EBITDA and EBITDAR should not
be considered as measures of financial performance under generally accepted
accounting principles.  As the items excluded from EBITDA and EBITDAR are
significant components in understanding and assessing financial
performance, EBITDA and EBITDAR should not be considered in isolation or as
alternatives to net income (loss), cash flows generated by or used in
operating, investing or financing activities or other financial statement
data presented in the consolidated financial statements as indicators of
financial performance or liquidity.  Because EBITDA and EBITDAR are not
measurements determined in accordance with U.S. generally accepted
accounting principles and are thus susceptible to varying calculations,
EBITDA and EBITDAR as presented may not be comparable to other similarly
titled measures of other companies.



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

    RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA and EBITDAR
                             ($ in thousands)

              For the Three Months Ended September 30, 2009
                                (unaudited)


                                                     Elimination
                    Rehabilitation Medical               of
           Inpatient   Therapy    Staffing  Other &  Affiliated
           Services    Services   Services  Corp Seg   Revenue Consolidated
           ----------  ---------  --------  --------  --------  ----------
Nonaffiliated
 revenue   $  420,623  $  26,394  $ 23,864  $     12  $      -  $  470,893
Affiliated
 revenue            -     18,592       545         -   (19,137)          -
           ----------  ---------  --------  --------  --------  ----------
  Total
   revenue    420,623     44,986    24,409        12   (19,137)    470,893

Net segment
 income
 (loss)    $   39,330  $   2,606  $  2,091  $(25,546) $      -  $   18,481
Interest,
 net            3,024          -        (1)    9,208         -      12,231
Depreciation
 and
 amortization  10,483        140       179       658         -      11,460
           ----------  ---------  --------  --------  --------  ----------

  EBITDA   $   52,837  $   2,746  $  2,269  $(15,680) $      -  $   42,172
Center rent
 expense       17,852        119       223         -         -      18,194
           ----------  ---------  --------  --------  --------  ----------

  EBITDAR  $   70,689  $   2,865  $  2,492  $(15,680) $      -  $   60,366
           ==========  =========  ========  ========  ========  ==========

  Normalized
   EBITDA  $   52,837  $   2,746  $  2,269  $(15,680) $      -  $   42,172
  Normalized
   EBITDAR $   70,689  $   2,865  $  2,492  $(15,680) $      -  $   60,366


  EBITDA
   margin        12.6%       6.1%      9.3%                            9.0%
  EBITDAR
   margin        16.8%       6.4%     10.2%                           12.8%
  Normalized
   EBITDA
   margin        12.6%       6.1%      9.3%                            9.0%
  Normalized
   EBITDAR
   margin        16.8%       6.4%     10.2%                           12.8%

See definitions of EBITDA and EBITDAR in the table "Reconciliation of
 Net Income to EBITDA and EBITDAR".

See normalizing adjustments in the table "Normalizing Adjustments -
 Quarter Comparison".






                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

    RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA and EBITDAR
                             ($ in thousands)

               For the Nine Months Ended September 30, 2009
                                (unaudited)



                                                     Elimination
                    Rehabilitation Medical               of
           Inpatient   Therapy    Staffing  Other &  Affiliated
           Services    Services   Services  Corp Seg   Revenue Consolidated
           ----------  ---------  --------  --------  --------  ----------

Nonaffiliated
 revenue   $1,252,310  $  78,063  $ 77,335  $     27  $      -  $1,407,735
Affiliated
 revenue            -     55,168     1,668         -   (56,836)          -
           ----------  ---------  --------  --------  --------  ----------
  Total
   revenue  1,252,310    133,231    79,003        27   (56,836)  1,407,735

Net segment
 income
 (loss)    $  119,934  $   8,606  $  6,401  $(78,430) $      -  $   56,511
Interest,
 net            9,345         (2)       (1)   28,080         -      37,422
Depreciation
 and
 amortization  30,330        399       601     2,006         -      33,336
           ----------  ---------  --------  --------  --------  ----------

  EBITDA   $  159,609  $   9,003  $  7,001  $(48,344) $     -   $  127,269
Center rent
 expense       53,725        348       700         -         -      54,773
           ----------  ---------  --------  --------  --------  ----------

  EBITDAR  $  213,334  $   9,351  $  7,701  $(48,344) $      -  $  182,042
           ==========  =========  ========  ========  ========  ==========

  Normalized
   EBITDA  $  163,909  $   9,003  $  7,001  $(48,344) $      -  $  131,569
  Normalized
   EBITDAR $  217,634  $   9,351  $  7,701  $(48,344) $      -  $  186,342


  EBITDA
   margin        12.7%       6.8%      8.9%                            9.0%
  EBITDAR
   margin        17.0%       7.0%      9.7%                           12.9%
  Normalized
   EBITDA
   margin        13.1%       6.8%      8.9%                            9.3%
  Normalized
   EBITDAR
   margin        17.4%       7.0%      9.7%                           13.2%

See definitions of EBITDA and EBITDAR in the table "Reconciliation of
 Net Income to EBITDA and EBITDAR".

See normalizing adjustments in the table "Normalizing Adjustments - Year
 to Date Comparison".





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

    RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA and EBITDAR
                             ($ in thousands)

              For the Three Months Ended September 30, 2008
                                (unaudited)


                                                     Elimination
                    Rehabilitation Medical               of
           Inpatient   Therapy    Staffing  Other &  Affiliated
           Services    Services   Services  Corp Seg   Revenue Consolidated
           ----------  ---------  --------  --------  --------  ----------

Nonaffiliated
 revenue   $  403,736  $  22,756  $ 29,256  $      9  $      -  $  455,757
Affiliated
 revenue            -     15,562       827         -   (16,389)          -
           ----------  ---------  --------  --------  --------  ----------
  Total
   revenue    403,736     38,318    30,083         9   (16,389)    455,757

Net segment
 income
 (loss)    $   35,821  $   1,793  $  2,479  $(24,386) $      -  $   15,707
Interest,
 net            3,548          -        (5)    9,527         -      13,070
Depreciation
 and
 amortization   8,980        138       216       831         -      10,165
           ----------  ---------  --------  --------  --------  ----------

  EBITDA   $   48,349  $   1,931  $  2,690  $(14,028) $      -  $   38,942
Center rent
 expense       18,065        100       244         -         -      18,409
           ----------  ---------  --------  --------  --------  ----------

  EBITDAR  $   66,414  $   2,031  $  2,934  $(14,028) $      -  $   57,351
           ==========  =========  ========  ========  ========  ==========

  Normalized
   EBITDA  $   48,349  $   1,931  $  2,690  $(14,028) $      -  $   38,942
  Normalized
   EBITDAR $   66,414  $   2,031  $  2,934  $(14,028) $      -  $   57,351


  EBITDA
   margin        12.0%       5.0%      8.9%                            8.5%
  EBITDAR
   margin        16.4%       5.3%      9.8%                           12.6%
  Normalized
   EBITDA
   margin        12.0%       5.0%      8.9%                            8.5%
  Normalized
   EBITDAR
   margin        16.4%       5.3%      9.8%                           12.6%

See definitions of EBITDA and EBITDAR in the table "Reconciliation of
 Net Income to EBITDA and EBITDAR".

See normalizing adjustments in the table "Normalizing Adjustments -
 Quarter Comparison".




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

    RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA and EBITDAR
                             ($ in thousands)

               For the Nine Months Ended September 30, 2008
                                (unaudited)


                                                    Elimination
                    Rehabilitation Medical               of
           Inpatient   Therapy    Staffing  Other &  Affiliated
           Services    Services   Services  Corp Seg   Revenue Consolidated
           ----------  ---------  --------  --------  --------  ----------

Nonaffiliated
 revenue   $1,202,050  $  65,607  $ 89,020  $     29  $     -   $1,356,706
Affiliated
 revenue            -     44,314     2,155         -   (46,469)          -
           ----------  ---------  --------  --------  --------  ----------
  Total
   revenue  1,202,050    109,921    91,175        29   (46,469)  1,356,706

Net segment
 income
 (loss)     $ 116,991  $   6,483  $  6,866  $(80,199) $      -  $   50,141
Interest,
 net           10,130         (1)      (14)   31,029         -      41,144
Depreciation
 and
 amortization  26,311        396       611     2,235         -      29,553
           ----------  ---------  --------  --------  --------  ----------

  EBITDA   $  153,432  $   6,878  $  7,463  $(46,935) $      -  $  120,838
Center rent
 expense       54,308        285       732         -         -      55,325
           ----------  ---------  --------  --------  --------  ----------

  EBITDAR  $  207,740  $   7,163  $  8,195  $(46,935) $      -  $  176,163
           ==========  =========  ========  ========  ========  ==========

  Normalized
   EBITDA  $  151,729  $   6,878  $  7,463  $(46,413) $      -  $  119,657
  Normalized
   EBITDAR $  206,037  $   7,163  $  8,195  $(46,413) $      -  $  174,982


  EBITDA
   margin        12.8%       6.3%      8.2%                            8.9%
  EBITDAR
    margin       17.3%       6.5%      9.0%                           13.0%
  Normalized
   EBITDA
   margin        12.6%       6.3%      8.2%                            8.8%
  Normalized
   EBITDAR
   margin        17.1%       6.5%      9.0%                           12.9%

See definitions of EBITDA and EBITDAR in the table "Reconciliation of
 Net Income to EBITDA and EBITDAR".

See normalizing adjustments in the table "Normalizing Adjustments - Year
 to Date Comparison".






               Sun Healthcare Group, Inc. and Subsidiaries
                      Selected Operating Statistics
                          Continuing Operations


                    For the                         For the
              Three Months Ended               Nine Months Ended
                 September 30,                   September 30,
            -----------------------       ---------------------------
              2009           2008            2009             2008
Consolidated
 Company

Revenues -
 Non-
 affiliated
 (in
 thousands)
  Inpatient
   Services $420,623       $403,736       $1,252,310       $1,202,050
  Rehabili-
   tation
   Therapy
   Services   26,394         22,756           78,063           65,607
  Medical
   Staffing
   Services   23,864         29,256           77,335           89,020
  Other -
   non-core
   businesses     12              9               27               29
            --------       --------       ----------       ----------
    Total   $470,893       $455,757       $1,407,735       $1,356,706
            ========       ========       ==========       ==========


Revenue Mix
 - Non-
 affiliated
 (in
 thousands)
  Medicare  $138,105   29% $127,942   28% $  417,844   30% $  386,250   28%
  Medicaid   189,878   40%  184,453   40%    559,358   40%    542,536   40%
  Private
   and
   Other     114,144   25%  117,375   26%    341,425   24%    348,920   26%
  Managed
   Care /
   Insurance  24,393    5%   22,149    5%     76,591    5%     67,892    5%
  Veterans     4,373    1%    3,838    1%     12,517    1%     11,108    1%
            --------  ---  --------  ---  ----------  ---  ----------  ---
    Total   $470,893  100% $455,757  100% $1,407,735  100% $1,356,706  100%
            ========  ===  ========  ===  ==========  ===  ==========  ===


Inpatient
 Services
 Stats

 Number of
  centers:       206            206              206              206
 Number of
  available
  beds:       22,481         22,516           22,481           22,516
 Occupancy
  %:            87.9%          88.7%            88.2%            89.0%


 Payor Mix
  % based
  on
  patient
  days:
   Medicare
    - SNF
    Beds        15.3%          15.7%            15.8%            16.3%
   Managed
    care /
    Ins. -
    SNF
    Beds         3.9%           3.7%             4.1%             3.9%
            --------       --------       ----------       ----------
     Total
      SNF
      skilled
      mix       19.2%          19.4%            19.9%            20.2%
            --------       --------       ----------       ----------
  Medicare      14.0%          14.3%            14.4%            14.8%
  Medicaid      60.7%          60.1%            60.5%            59.5%
  Private
   and
   Other        20.7%          21.3%            20.3%            21.3%
  Managed
   Care /
   Insurance     3.6%           3.4%             3.8%             3.5%
  Veterans       1.0%           0.9%             1.0%             0.9%

 Revenue
  Mix % of
  revenues:
   Medicare
    - SNF
    Beds        32.2%          31.6%            32.9%            32.3%
   Managed
    care /
    Ins. -
    SNF
    Beds         6.1%           5.8%             6.4%             5.9%
            --------       --------       ----------       ----------
     Total
      SNF
      skilled
      mix       38.3%          37.4%            39.3%            38.2%
            --------       --------       ----------       ----------
  Medicare      31.9%          30.9%            32.4%            31.4%
  Medicaid      45.1%          45.7%            44.7%            45.1%
  Private
   and
   Other        16.2%          16.9%            15.8%            17.0%
  Managed
   Care /
   Insurance     5.8%           5.5%             6.1%             5.6%
  Veterans       1.0%           1.0%             1.0%             0.9%


 Revenues
  PPD:
  LTC only
   Medicare
   (Part A) $ 457.79       $ 423.38       $   454.15       $   417.23
  Medicare
   Blended
   Rate
   (Part A
   & B)     $ 496.11       $ 456.82       $   491.94       $   447.68
  Medicaid  $ 172.06       $ 167.12       $   170.86       $   165.88
  Private
   and
   Other    $ 175.29       $ 170.82       $   175.82       $   170.58
  Managed
   Care /
   Insuran-
   ce       $ 371.09       $ 352.17       $   373.86       $   347.90
  Veterans  $ 234.74       $ 220.82       $   229.95       $   214.45

Rehab
 contracts

 Affiliated      121            116              121              116
 Non-
  affiliated     328            325              328              325

 Average
  Qtrly
  Revenue
  per
  Contract  $  100.2       $   86.9       $     98.9       $     83.1
 (in
  thousands)





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

               NORMALIZING ADJUSTMENTS - QUARTER COMPARISON
                  (in thousands, except per share data)


                             AS REPORTED - 3rd QUARTER 2009
               ===========================================================
                                                 Income
                                                  from
                                               Continuing
                                                 Opera-    Disc     Net
               Revenue  EBITDAR EBITDA  Pre-tax  tions     Ops    Income
               -------- ------- ------- -------  -------  ------  -------

As Reported
 3rd QUARTER
 2009          $470,893 $60,366 $42,172 $17,609  $10,389  $ (731) $ 9,658
  Percent of
   Revenue                 12.8%    9.0%    3.7%     2.2%   -0.2%     2.1%
Normalizing
 Adjustments:
  Restructuring
   costs              -       -       -     872      514       -      514
               -------- ------- ------- -------  -------  ------  -------

Adjusted As
 Reported -
 3rd QUARTER
 2009          $470,893 $60,366 $42,172 $18,481  $10,903  $ (731) $10,172
               ======== ======= ======= =======  =======  ======  =======
Percent of
 Revenue                  12.8%     9.0%    3.9%     2.3%   -0.2%     2.2%

Diluted EPS:
  As Reported                                    $  0.24  $(0.02) $  0.22
  As Adjusted                                    $  0.25  $(0.02) $  0.23


                             AS REPORTED - 3rd QUARTER 2008
               ===========================================================
                                                 Income
                                                  from
                                               Continuing
                                                 Opera-    Disc     Net
               Revenue  EBITDAR EBITDA  Pre-tax  tions     Ops    Income
               -------- ------- ------- -------  -------  ------  -------

As Reported -
 3rd QUARTER
 2008          $455,757 $57,351 $38,942 $15,707  $ 9,421  $ (817) $ 8,604
  Percent of
   Revenue                 12.6%    8.5%    3.4%     2.1%   -0.2%     1.9%
Normalizing
 Adjustments:
  None                -       -       -       -        -       -        -
               -------- ------- ------- -------  -------  ------  -------

Adjusted As
 Reported -
 3rd QUARTER
 2008          $455,757 $57,351 $38,942 $15,707  $ 9,421  $ (817) $ 8,604
               ======== ======= ======= =======  =======  ======  =======
Percent of
 Revenue                   12.6%    8.5%    3.4%     2.1%   -0.2%     1.9%

Diluted EPS:
  As Reported                                    $  0.21  $(0.02) $  0.19
  As Adjusted                                    $  0.21  $(0.02) $  0.19


See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net
Income to EBITDA and EBITDAR".

Normalizing adjustments are transactions or adjustments not related to
ongoing operations and consists of restructuring costs.

Since normalizing adjustments are not measurements determined  in
accordance with U.S. generally accepted accounting principles and are thus
susceptible to varying calculations and interpretations, the information
presented herein may not be comparable to other similarly described
information of other companies.



                   SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

               NORMALIZING ADJUSTMENTS - YEAR TO DATE COMPARISON
                     (in thousands, except per share data)


                              AS REPORTED - NINE MONTHS 2009
               ============================================================
                                                 Income
                                                  from
                                               Continuing
                                                 Opera-     Disc     Net
            Revenue   EBITDAR   EBITDA  Pre-tax  tions      Ops    Income
           ---------- -------- -------- -------  -------  -------  -------

As Reported -
 Nine
 Months
 2009      $1,407,735 $182,042 $127,269 $55,597  $32,802  $(2,806) $29,996
  Percent of
   Revenue                12.9%     9.0%    3.9%     2.3%    -0.2%     2.1%

Normalizing
 Adjustments:
  Restructuring
   costs            -        -        -     872      514        -      514
  Prior
   periods'
   self-
   insurance
   costs            -    4,300    4,300   4,300    2,537      348    2,885
           ---------- -------- -------- -------  -------  -------  -------

Adjusted As
 Reported -
 Nine Months
 2009      $1,407,735 $186,342 $131,569 $60,769  $35,853  $(2,458) $33,395
           ========== ======== ======== =======  =======  =======  =======
Percent of
 Revenue                  13.2%     9.3%    4.3%     2.5%    -0.2%     2.4%

Diluted EPS:
 As Reported                                     $  0.75  $ (0.07) $  0.68
 As Adjusted                                     $  0.82  $ (0.06) $  0.76


                              AS REPORTED - NINE MONTHS 2008
               ============================================================
                                                 Income
                                                  from
                                               Continuing
                                                 Opera-     Disc     Net
            Revenue   EBITDAR   EBITDA  Pre-tax  tions      Ops    Income
           ---------- -------- -------- -------  -------  -------  -------

As Reported -
 Nine
 Months
 2008      $1,356,706 $176,163 $120,838 $50,218  $30,099  $(3,233) $26,866
  Percent of
   Revenue                13.0%     8.9%    3.7%     2.2%    -0.2%     2.0%

Normalizing
 Adjustments:
  Release of
   insurance
   reserves
   related to
   prior
   periods          -   (2,650)  (2,650) (2,650)  (1,590)    (222)  (1,812)
  Harborside
   integration
   costs            -    1,469    1,469   1,469      881        -      881
           ---------- -------- -------- -------  -------  -------  -------
Adjusted As
 Reported -
 Nine Months
 2008      $1,356,706 $174,982 $119,657 $49,037  $29,390  $(3,455) $25,935
           ========== ======== ======== =======  =======  =======  =======
  Percent of
   Revenue                12.9%     8.8%    3.6%     2.2%    -0.3%     1.9%

Diluted EPS:
  As Reported                                    $  0.68  $ (0.07) $  0.61
  As Adjusted                                    $  0.67  $ (0.08) $  0.59


See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net
Income to EBITDA and EBITDAR".

Normalizing adjustments are transactions or adjustments not related to
ongoing operations and consist of restructuring costs, prior periods'
self-insurance costs and integration costs related to the Harborside
acquisition.

Since normalizing adjustments are not measurements determined in
accordance with U.S. generally accepted accounting principles and are thus
susceptible to varying calculations and interpretations, the information
presented herein may not be comparable to other similarly described
information of other companies.



Contact Information

  • Contact:
    Investor Inquiries
    (505) 468-2341

    Media Inquiries
    (505) 468-4582